India Business and Finance, May 15th

What happened in india during the past week

The election, the stockmarket and foreign investors

The Indian stock market, after having been on a roll, slid almost 3% since April 29 before having a bit of a bounce. In the last week alone, foreign portfolio investors (FPIs) have sold $2.3bn worth of shares in Indian companies, coming on top of $1.3bn sold during April. FPI holdings now constitute under 18% of the Indian market by value, the lowest since 2012. Multiple causes are cited. The first and least discussed (because it is subtle and cannot be understood by looking at data) stems from changes in India’s financial system that undermine the ability of foreigners to invest. Key legal provisions to replace the current system will not be put in place until after the election, and that assumes the return of a powerful Narendra Modi, who has been orchestrating a shift in the overseas investment conduits from entrepots such as Mauritius and Singapore to his home state of Gujarat.

But that leads to a second question and further cause for the market volatility: will a powerful Modi return? A month ago this was the conventional wisdom. Now, the consensus in the business community seems to be that the Modi victory will be narrower than expected and some even throw out the idea of a possible coalition administration. The possibility of a weaker Modi is seen by many in the business community, but not all, as undermining the prospect of market-oriented reforms being pushed through India’s chaotic political and bureaucratic channels. That, in turn, leads to a third question: the likelihood of a mixed election result. It is important to understand that baseless rumours float through the Indian political system all the time but it is hard to discount what is being said because genuine information in India does seep from many obscure corners. It is possible that the new sentiment is being gleaned from early voting. On Tuesday, there was a fresh rumour that new private poling showed strong support for Mr Modi had emerged (which might have contributed to the stockmarket’s rebound). While it is difficult if not impossible to know where the election stands, it is clear that state of expectations is, for the moment, in flux.

Indian safety, credibility and quality certification

After concerns about the safety of Indian spices led to their being recalled, new central government testing standards are being imposed. The industry is important to India with exports having grown from $2.7bn in the 2017 fiscal year (ends March 31st) to $4.25 in the most recent fiscal year. For similar if more dire reasons, the central government has also imposed new testing standards on pharmaceutical products that are exported and in so doing it has pushed aside some of the regulatory role that had been performed by states. The move follows a number of reports of fatalities from Indian-produced medicines.

At the same time as India has reluctantly imposed tighter regulation of its own products, it has also imposed new safety standards on imports, albeit for reasons that may really be just about erecting trade barriers. New certification standards for factories producing shoes that are imported into India have, according to The Economic Times, resulted in Armani Exchange, Calvin Klein, Tommy Hilfiger and other foreign companies running out of shoes to sell in their Indian outlets.

The business economy

 Labour relations. Unofficial strikes at several of the airlines that have come under the Tata umbrella have resulted in hundreds of cancelled flights. Tata’s move to create a new company out of its existing operations and the re-acquisition of Air India (it was nationalized in the 1950s) was always going to involve labour issues. What is most surprising is how these sorts of events, once common in India, have become exceedingly rare. There were 370 industrial actions in 2011, resulting in 14,700 workdays lost, according to The Business Standard. That number had, prior to the activity at Tata, fallen to almost nothing.

Company results. It is generally thought that Asian Paints is among the best run companies in India. It has a long track record of success, data analytics to route favoured colours quickly in response to demand and a market that combines construction and harsh weather in a way that would seemingly require unending amounts of paint. But sales over the past year fell 0.6%. What is happening? Among the possibilities is that demand has become sluggish, reflecting potholes in the economy not reflected in the broader numbers and not reflecting wholesale benchmarks like the Service Sector Purchasing Managers Index which put up a very strong number in April. The downbeat case is reinforced by sputtering sales growth for companies producing fast moving consumer goods like biscuits and detergents. Another possibility is newfound competition which reflects something more positive about the Indian economy – that growing areas with high returns are attracting the interest of other companies. In the past year, there have been several new entrants into the paint market, meaning Asian Paints is beginning to face a long cycle of competition for what is, at least somewhat, a commodity product. Other large Indian companies that have long dominated similar sectors may now be facing similar pressures which may have a negative impact on corporate profits but positive consequences for customers and provide a signal that the market is more open than in the past.

How public should public companies be?

Indian regulations require at least 25% of a company’s shares to be tradeable in order for it to list on the Indian securities market. Many of India’s companies are heavily held by insiders. As a way to democratize wealth, a columnist at Businessline advised the government to expand the public quotient to 30% or 35%. It is an interesting idea since it allows more participation in the capital component of capitalism by the public and is directly at odds with what is unfolding in America with an ever-increasing percentage of holdings buried within private equity firms that, bizarrely, have been accorded tax, disclosure and governance advantages by the government and stock exchanges.

Arms sales

India’s defense exports have grown from under Rs22m ($264m) to almost Rs22bn ($2.64bn) between the end of March 2015 and the end of March 2024, according to calculations by Businessline, based on multiple sources. This is an intentional strategy of the Modi administration, which wants to produce more of its own armaments and generate revenues from sales overseas. Among the products mentioned were rockets and missiles to Armenia and the Philippines. Defense attaches are now being included in diplomatic missions to those countries as well as others in Africa, and Poland.

Family divisions

After five years of negotiations, the Godrej Group, founded in the late 19^th century, announced an amicable split of its operations into two pieces, each controlled by different members of the Godrej family. Assuming there is no subsequent disruption, the event will be used as a model for numerous other large family companies that emerged in the decades since independence and are now being passed on to the children, grandchildren, great grandchildren and great great grandchildren of founders. Some of Indian family operations are being intentionally built to last. The Adani family is tightly involved in company operations. But there are many companies in which the family has all but disappeared (notably Tata) or developed other interests or, as is remarkably common in India, developed intense antipathy toward one another. The transition of the Ambani family businesses from the founder to sons led to one becoming the richest many in India, the other teetering on insolvency. New Indian regulations require settlements to be disclosed if they affect managerial control.

Can America impose “community guidelines” on the world

Bhavish Aggarwal, the head of Ola – which encompasses a cab hailing company and electric scooter maker along with a new artificial intelligence startup  – said he would remove all data from Microsoft’s Azure cloud after a post by him? calling the usage of the pronoun “they” an illness was blocked by Linkedin, owned by Microsoft, on the basis that it violated community guidelines. All Ola cloud activity will be shifted to in-house services and Ola will provide free cloud usage to any other developer moving from Microsoft for one year. “Data should be owned by the creators instead of being owned by the corporates who make money using our data and then lecturing us on ‘community guidelines’”, Mr Aggarwal said. The fracas may just be a way to promote a new Ola service and may even be the pretext for dumping a prior deal. Some people may disagree with Mr Aggarwal’s comment. But it is worth noting that his statement is likely endorsed, if only tacitly, by the Indian government because it has strong concerns about the control of Indian content by foreign entities.

Overseas studies

India now accounts for the largest contingent of foreign students studying in Germany with 43,000, up from 34,000 the year before. That surpassed the 39,000 students from China, previously the largest national contingent. In contrast, the number of Indian students studying in Canada has crashed, with 15,000 during the past year, down from 109,000 the year before. Overseas education markets are a big deal in India. The popularity of Canadian schools have sharply dropped because of political tensions between the two countries and the recent protests on the campuses of prominent American schools have caused many Indian parents to question what their children are being taught, or not taught, in exchange for high fees.

Country’s as seen through their choice of colours

The Financial Express says mint green, hot pink, tangerine orange, bright yellow and other similar colours are hot in India. Similarly intensely vibrant colours are popular in the Unite Arab Emirates, according to Lululemon’s global data centre in Bangalore, while sales in America, particularly in the northeast, remain heavily skewed toward black and gray.

Child labour

The horrors of child labour have long been documented in books and the press. In the 19^th century, particularly in America, it also gave rise to an oddly heroic literature, notably the books by Horatio Alger, which featured a plucky child able to emerge from poverty, often with a boost from a sponsor. A real-life story of this genre is gripping India. The Times of India ran a story on ten-year-old Jaspreet Singh, whose father died recently after a long illness and whose mother departed for her family in Punjab, leaving behind Jaspreet’s 12-year-old sister in his care. It turns out Jaspreet is a remarkably capable roadside chef. A video posted on X of his adept preparation of egg and chicken rolls has led to a large following. One of the viewers, the industrialist Anand Mahindra, has asked for a contact number to locate him with the intent of funding his education.

The convergence of science, business and joy

A study published in the Journal of American Chemical Society Pharmacology and Translational Science, produced by the University of Hyderabad, concluded mangoes are good for multiple digestive problems including inflammatory bowel disease and might have ameliorating characteristics for colon cancer (though far more research is required). In the case of other fruits and vegetables, a positive study result in new ways for consumption as for mangoes? Such is the existing local infatuation that in the current mango season, they are already consumed as straightforward fruit, in numerous drinks including cocktails, as an ice cream, in salads and yogurt, and as an ingredient with rice, fish, meat, and noodles. Every café has a picture of a mango on the table; innumerable street stands have popped up piled high with mangoes and mango boxes. How still more mangoes can enter the Indian digestive system is a mystery but with the new medical report adding the excuse of health to pleasure, it would be naive to think that this will not be a hot area of India innovation.

For distribution in America