India Business and Finance, November 28th
What happened in Indian business and finance last week
Business cycles
What the departure of India’s Jewish population after 2,000 years tells you about the country
https://thespectator.com/topic/indian-exodus-jewish-population-exits-2000-years/
Hope
Order books for capital goods among leading Indian firms have passed $bn, according to a survey by The Business Standard. That is the highest level since 2019, a hint that the long-awaited investment surge is finally taking hold, reversing a worrying trend. Overall capital expenditures in the September quarter grew only 10% from a year earlier, the lowest rate since 2021, when fears of a renewed lockdown were rampant.
Why the positive outlook may prevail
An analysis of 3,559 companies by the newspaper Mint shows year-on-year growth in net profits in excess of 20%.
Confirmation from the energy markets
Coal imports have been up 20% year-on-year in each of the past four months, a result of higher demand for power. In a parallel development, Coal India, the government-controlled but publicly listed giant, is having an excellent year with strong growth in revenues, earnings and margins. This suggests expanding industrial production and may provide a bit of explanation for why the air in many parts of India has been particularly poisonous.
Building rather than consolidating
The mergers market in India has fallen to the lowest level in more than a decade and one-tenth of the total was accounted for by Walmart’s purchasing shares of Flipkart that had been left out of the initial 2018 deal that gave it control. While mergers are falling, the initial public offering market is on a roll, with new companies listing every week. One inference is that India, which has long been dominated by a handful of companies, is shifting away, however gently, from consolidation and toward expansion and healthy fragmentation.
The flip side of India’s efficient payment system
Berkshire Hathaway sold its 2.5% share of PayTm at a loss of $61m. While this is a small change for Berkshire, the failure resonates. PayTm is a private company at the heart of India’s vaunted digital payment system and did much to push its adoption through aggressive marketing. Its initial public offering in 2021 was widely hyped by global investment banks touting India’s growth. Regardless of growth, the core mission of India’s digital payment system is to eliminate transaction costs (or what a payment provider might call “profits”). Once the buzz around the offering faded, the share price of PayTm crashed, though there has been some rebound on the possibility it can transform itself into a more conventional financial firm. The investment was unusual for Berkshire Hathaway’s boss Warren Buffett in as much as it relied on the adoption of new technology supervised with a heavy hand by bureaucrats, and the company had few assets and a questionable brand value. For all these reasons, it was a company whose prospects require a deep local knowledge to assess. Mr Buffett is run by a genius, but his office in Omaha is a long way away.
Rot in the financial system?
India’s financial institutions have made a remarkable recovery over the past decade but the system is complex with a capacity to surprise. The Reserve Bank of India (RBI), India’s central bank, assumed control of Abhyudaya Co-Op, a Mumba-based bank founded in 1965 for cotton workers. “Poor governance” was the stated reason. A report that non-performing loans amounted to in excess of 12% of assets seems like it was the trigger. With $2.2 bn in assets, Abhyudaya, though not particularly large, was too big to be merged into a similar institution. The RBI's move either reflects a willingness to move before problems become public, which hasn’t been the case in the past and thus is evidence of increasingly capable regulatory oversight, or a reflection of problems in the financial system that continue to fester away from the limelight.
There is China and everywhere else
A review of a pan-Asia trade agreement will begin with a focus on making rules of origin stricter, reports The Financial Express. Trade between 10 ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and India has grown dramatically along with India’s trade deficit (up in the past year from $25.7bn to $43.5bn). Besides a general concern about the overall number, India is surely worried that ASEAN countries are providing a route for Chinese goods to avoid import restrictions.
State divestments slow
For years, India’s professed desire to sell state-controlled businesses and shed the vestiges of Nehruvian socialism was closely followed in the press. The failure to sell Air India was seen as evidence of its insincerity. The airline was finally off-loaded last year, but the process of selling other state-controlled entities has seemingly stalled. A story in Businessline said about half the money expected to be raised, $3.6bn, will not be forthcoming. Among the larger failures are a bank, IDBI, and NMDC Steel. In the first case, buyers are still being vetted. In the second, trade unions have filed objections. The bigger impediment, however, is that peddling companies has ceased to capture the interest of the public or the government.
The language of advertising
Mumbai’s signs long ago began shedding English. That is insufficient. The politics behind the use of Hindi, the national language (sort of), are infinitely more complex. Mumbai municipal authorities will begin fining stores that do not display their signs in Marathi, one of 22 languages in India that have official recognition.
Justice
The Times of India is unsurpassed in its coverage of the interaction of people with animals. It had two stories in the past week that say a lot about India, even if I am not always clear about what that might be.
1) A snake snuck into a housing complex in Powai, a modern area of Mumbai where the regional headquarters of S&P and other foreign firms are located. The guard at the housing complex killed the snake with a stick. He has been arrested under the Wildlife Protection Act. The proper response is to call a Mitra (snake rescuer).
2) A 21-year-old in Karnataka was killed when he swerved his motorcycle to avoid hitting one of the stray dogs that wander freely around the country’s big cities. After the incident, the dog walked several kilometers to the family of the dead boy and waited outside for several days, fighting off other strays in the process, before entering the home and resting his head on the hand of the boy’s mother. The act was perceived to be a statement of mourning and remorse. The dog has now been adopted by the family.