India Business and Finance, November 21st

What happened in Indian business and finance last week

The most important vote in India

India will be awash in elections over the next year. The vote that matters, and the one its current government cares almost as much about as the one determining its future, is that of local and foreign investors who, so far, have been reluctant to match the enthusiasm surrounding India with investment (thus showing a scepticism not reflected in invariably laudatory comments). See the following story in the Economist’s just published year ahead issue. Sorry about a possible paywall. Non-subscribers can, i think, login and get a few free pieces: https://www.economist.com/the-world-ahead/2023/11/13/sluggish-investment-is-holding-india-back

Three deaths

In a developing economy like India’s, the death of a major figure in the country’s financial or business world often has outsized significance. This is all the more true now because the generation who participated in the country’s post-independence experimentation is leaving the scene. Three notable figures died in the past week.

Prithvi Raj Singh Oberoi     

The most unlikely member of the group is Prithvi Raj Singh Oberoi, if only because his profession – luxury hotelier – would seem so out of place for the new, socialist-leaning India of post-independence. His father, Mohan Singh Oberoi, began as a clerk at a hotel in Shimla, the colonial summer capital, and acquired it from the British owner who wanted to return home and saw unusual talent in his employee (and consequently may have loaned him money for the purchase). His subsequent acquisition of the deteriorating Calcutta Grand Hotel for a song during a cholera epidemic, and his restoration of both its structure and reputation, brought some fame. Over the longer term the fame grew as Rahi and Prithvi  meticulously managed an expanding number of properties. In the process, they showed how chaotic, colorful India could still provide places that were spotless and orderly and as good as any overseas hotel. This all resulted in their properties becoming places people not only wanted to stay but also to be seen frequenting. In the early 1970s, when Bombay’s financial centre relocated to the new Nariman Point, Prithvi built two modern hotels, the Oberoi and the Trident, which served as the district’s anchors and the initial Indian headquarters for newly arrived Goldman Sachs and Morgan Stanley.

In recent years, the Oberoi Group’s presence has faded slightly as Mr Oberoi stepped back from active management, other chains with high standards (some local but many global) arrived, and a chunk of the company was acquired by the Reliance group, a company adept at profiting in regulated areas but, notwithstanding much effort and costly publicity, a company without? the Oberoi touch of elevating not only its proprietors but its customers as well.

Subrata Roy

 Subrata Roy certainly had this talent, albeit in a most toxic form. A chapter of the Netflix series “Indian Bad Boy Billionaires” covered his career. In the name of family and nation and an expansive list of universal spiritual values, he extracted savings from the poorest Indians. The money was deployed via his Sahara group into a staggering range of businesses including aviation, Bollywood, cricket, real estate and hospitality (including ownership of New York’s opulent Plaza Hotel). Along the way he built a small luxury city between Mumbai and Pune and launched innumerable other similar projects throughout the country that never came to fruition. An estimated 30m-to-40m Indians gave their savings to Mr Roy, often in the tiniest denominations, reflecting their work as street cleaners, rickshaw drivers, and in other low-paid jobs. Funds were collected through a vast network of commission agents whose numbers made Sahara India’s second largest employer, behind only the country’s sprawling national railways company. He was surrounded by prominent actors, athletes and politicians because (unclear). The savings/investment component of his business thrived in part because alternatives did not exist, in part because he was adept in circumventing rules and in part (unclear). Investigations into his empire began as long ago as 2008. There were sanctions in 2013 and a two-year stay in jail between 20014 and 2016 followed by parole. The intervening years have not untangled the resulting mess and many of the poor investors are thought to have lost whatever tiny funds they put in although there is no adequate accounting, which is a scandal in itself.  In the most relevant eulogy, the head of SEBI, India’s primary financial regulator, said the investigations into Mr Roy’s dealings will not be concluded because of his death.

S. Venkitaramanan

 Such financial maleficence is not limited to the private sector. The third death was of S. Venkitaramanan. Between 1990 and 1992, when he headed India’s central bank and searched the world for emergency loans to prevent India from defaulting on its debt (earning the mocking nickname “loan ranger”), he played a key role in a particularly chaotic transition period as India reopened to the world and dispensed with an unsustainable, heavy-deficit-driven governing approach (which he helped run in an earlier role in the finance ministry). Under his watch, the bank was also consumed by a second banking scandal that involved the misuse of funds by Harshad Mehta, which revealed flaws in the regulatory system and complicity by regulators. He was recalled as a capable crisis manager at a key moment but perhaps because India’s financial system remains somewhat suspect, his accomplishments are viewed as critical but insufficient.

Non-fatal news this week

1)    Credit

It is in the context of the scandals by Roy and Mehta, the fecklessness of the country’s financial system that brought on the crisis of the early 1990s, and more recent similar events undermining the financial system, that last week’s move by India’s central bank makes sense. India would like to see credit growth for capital investment. Instead, while credit growth over the past year for business has grown 6%, it has grown 18% for retail loans and 30% for credit cards. In response, the Reserve Bank of India said it would increase the capital banks must put aside when making these loans, dimming their appeal. In response, the share price of financial companies focused on consumer lending fell by as much as 8%. Delinquencies remain low and, were India’s history different, the heavy-handed intervention would be considered excessive.But India’s regulators are, apparently, terrified of yet another blow to the financial system and prefer reacting to a threat possibly too soon rather than too late.

2)    Stockmarket

In contrast to the credit markets, higher share prices and a flurry of initial public offerings have resulted in profits for brokerage firms soaring – with profits in the quarter concluding at the end of September up 40% from the prior quarter and 36% from the prior year. By many valuation metrics, the Indian market is expensive but at least there is some justification for the ebullient stockmarket (and stockbroker profits)--the trajectory of corporate profits. A survey of 3,573 companies by The Economic Times shows net profits rose 41%.

3)    Infrastructure

Over the past two decades, China has built in excess of 70 new ports. India has 13 and wants more. A contract for a large new port in Karnataka to be built within five years was awarded to JSW, the country’s largest steel producer. The development will include rail and railway connections and be tied to a container logistics business acquired recently out of bankruptcy. This sort of transportation is dominated by the Adani Group but in winning the contract, the company and the government are showing that there will be at least some competition and furthermore, that more needs to be done. Fast.

4)    Education

A record number of 270,000 Indian students are attending school in America. Of these, 200,000 are expected to stay in America immediately after graduation.

5)    The price of safety?

AstraZeneca announced it will cease manufacturing products in India and work through contract manufacturers, reports The Times of India. The announcement comes at the same time as eyedrops are being recalled from Walmart, CVS, Target and other American pharmacies because of unsafe conditions in an Indian contract manufacturer. One response to a challenging environment is for production to be entirely in the hands of known and trusted companies but apparently that isn’t viable in the pharma industry.

6)    The price of politics

A record amount of money has been seized this year that had been intended, in the delicate phraseology of The Business Standard, to run campaigns and entice voters. The newspaper’s source was a senior official in charge of Indian taxation and its belief was this money was just the tip of the iceberg. This raises an important political and economic issue in India since vote buying is widely believed to be rampant with the only question being how much a vote might cost. I ask this question all the time and the prices cited are often higher than expected, meaning 5000 rupees ($60) or more. Individual votes are, of course, useless but a package of votes can be valuable.

7)    India gives what you need/Jagger gets what he wants, Modi what he needs

After posting a message expressing his thanks for a vacation in India, Mick Jagger received a response from Prime Minister Narendra Modi saying, “you can’t always get what you want” …. but India offers “satisfaction to all.”

For distribution in America