India Business and Finance, October 10th

Death of a curious sort of business icon and lots else

Death of Ratan Tata, a boss who succeeded and failed and in the process captured India’s affection

Ratan Tata died late Wednesday night. For a straightforward obituary written in the early morning hours, see: https://www.economist.com/business/2024/10/10/ratan-tata-a-consequential-and-beloved-figure-in-indian-business. After filing for the weekly edition, I went to Nariman Point on the southern tip of Mumbai and joined the crowd that had technically come to view Mr Tata’s body but really, I think, just wanted to pay their respects. Like thousands that did not make it past security, I was crushed against a fence (see photo) and initially just slithered away, forgetting to ask everyone around me why they came. After returning I heard stories. There were many Tata employees and descendants of Tata employees and relatives of Tata employees and people who knew Tata employees (you get the point) all of whom attributed their well-being to the company and the man who had led it. That is perhaps the best illustration of the particular way Tata is seen in India and I wonder if it could be said about any other company. One man told me his father survived three years because of treatment provided (at I think little or no cost)at a Tata cancer hospitals. He wanted to talk about this. A woman told me that Ratan had visited her school when she was a child and was kind and humble. Another said that Mr Tata was the rare Indian bigshot who wasn’t corrupt, a comment that seemed to emanate as much from the hunger of many Indians for a non-corrupt, modest, elite than any particular person.

Purchasing power parity

A sharp-eyed reporter from The Core, an online Indian news site, noticed that a dozen iPhone 16s were recently seized from passengers entering India from Dubai and 26 were seized from a passenger entering from Hong Kong. What made these events striking is that these are now made in India. Why should they be smuggled into the country? The obvious answer is the high cost of buying anything in India because of high taxes (and often tariffs). From Googling prices online, it appears that the same iPhone that costs $1170 in Dubai costs $1428 in Mumbai.

Writ large this explains why anyone traveling from India is given a lengthy shopping list by friends and why manufacturers contend tariffs and taxes make it difficult to compete with China and Vietnam. The Economist has compared prices in different countries using an index compiled by the prices of Big Macs because they are a consistent product comprised of multiple ingredients sold everywhere. Big Macs, however, are actually not consistent – the Indian version, for instance, does not include beef. Perhaps iPhone are, by themselves, a better measure of purchase power parity.

The declining importance of big shots

The many initial public offerings and the relatively stronger rise of mid-sized and smaller companies have combined to reduce the dominance of the so-called Indian nifty-fifty – an index of the largest and most prominent Indian companies. In 2021, they comprised 59% of the National Stock Exchange’s market cap in 2021. At the end of August, they comprised 44%, the lowest level in 25 years.

Investment bank earnings from IPOs

So far this year, bankers have pulled in $192m in fees, putting them on track for their second best year ever, trailing on the $318m of 2021 and the year is hardly over. There have been 62 offerings so far (along with many more tiny ones not captured in the calculation) and another 22 have been approved, with 53 more in the pipeline so buckets more in fees to come..

Financial scandal

Former executives of the National Stock Exchange, which was set up in the early 1990s in response to scandals at the Bombay Stock Exchange, paid fines of $77m, the largest in India’s history, to settle charges it allowed some traders to have preferential access to transaction information and thus earn huge untoward profits. Like many cases in India, the judicial trail is so long that the matter is largely, though never entirely, forgotten before it is resolved. In this case, the charges  seem to date back to 2017 and the settlement terms were submitted in 2023.

Manufacturing

Jobs in the manufacturing sector rose from 16.6m in the fiscal year immediately prior to the lockdown in 2020 to 18.5m at the end of March 2023. The just released numbers are quite old but may reflect a positive trend.

New projects

Announcements of new projects tracked by the Centre for Monitoring Indian Economy, a consultancy, rose in the second quarter (July-Sept), reflecting a turn after four quarters of contractions. These new projects involved Rs5.5 trillion, or just under $60bn, in investment, up 43% from the September quarter last year.

Higher pay

A survey by Aon of Indian companies reckons pay increases will average 9.5% in 2025, led by engineering and manufacturing.

Where Indians work

A table in Mint showed where manufacturing employment in India has been focused. Largest by far is food products (11.4%) followed by textiles (9.3%), followed by basic metals (7.6%), apparel (7.1%), motor vehicles (6.8%), machinery (6%), chemicals (5.7%), nonmetallic minerals (5.7%), rubber and plastic goods (5.1%), and pharma/ medical products (5%).  Missing is electronics which draws the most attention both because of what it has meant for other emerging economies, and perhaps because of what India has missed.

Venture finds less of interest in India

Peak XV (formerly Sequoia Capital’s Indian operations) announced it was reducing the size of a $2.85bn fund raised in May 2022 by $465m and possibly reducing partner compensation as well. The move reflects problems with existing investments, as well as the fact that valuations in the private markets have still not been written down to levels at which new investment is attractive, and an overall loss of enthusiasm about a large number of industries including electric vehicles, gaming and edtech.

But but but

India tracks a “core” sector comprisingf industrial products. It was down year-over-year in August for the first time since the lockdown. Only fertilizer and steel rose.  Cement, electricity, coal, crude oil and natural gas all contracted.

Mortality risk in India’s financial capital

During the recent (and maybe ending) monsoon, 12 Mumbai residents died from dengue fever and another 18 from leptospirosis (some say this is related to leprosy, but that’s not clear) and five from malaria.

The Indian diamond industry is being ground down

Surat quietly became the world’s diamond polishing capital. By some estimates, it accounted for 90% of global production. In recent years, the local industry included 1m workers in 4,000 factories. Surat’s success went a long way toward wiping out competing centres in Israel and Europe. Conditions recently, however, have been bleak. A reporter for the Economic Times spent a day meeting street vendors whose common denominator was that they once worked in the diamond factories.

America-India trade

One of the large economic issues for India has been its inability to boost exports in goods. The exception has been with America, which was once again the leading country in India’s bilateral trade in the first six months of the year. Exports to the U.S. grew 9% to $48.2bn and imports fell 5%. The Biden Administration and its various outward facing agencies has put little if any effort into pushing India to relax its many impediments to American exports beyond, perhaps, for splashy deals for defense companies and other big companies that know how to lobby. This has not attracted much public comment, possibly because of the ongoing tension with China, possibly because coverage of India’s relationship with America remains light. But if Donald Trump wins the election it likely will receive attention. That could result in trade tension but it could also lead to more fruitful collaboration between the two countries.

Foreign companies in India

Foreign companies often make money in India by having the central entity collect royalties from the local subsidiary. For ten large multinationals examined by The Economic Times, this number has grown 45% over the past five years, to Rs80.1bn  ($961m). Typically, these payments amount to several percent of sales and they are not always appreciated by the local affiliates who often have separate Indian stockmarket listings. Nestle’s efforts this year to increase the royalties it collected from its Indian operations were rejected by local shareholders.

The 15 largest Indian subsidiaries of global companies

An interesting table in Businessline ranked the Indian operations of multinationals by revenues. The largest was Accenture, followed by Apple, Cognizant, Dell, Good, IBM, Amazon, Microsoft, Facebook, John Deere, Caterpillar, Cisco Systems, Pepsico, American Express and Hewlett Packard

Black markets

Tickets for Coldplay concerts taking place in Mumbai in January that originally went for Rs2,500 ($35) to Rs35,000 ($416) are apparently going for thousands of dollars a piece on the secondary market. It isn’t clear whether this is illegal, but charges have been filed against multiple individuals for illicit sales. No arrests have been made or cases presented.

The end of the colonial era. Really.

Singapore has now ended horse racing, after 181 years, with the land that was used for it being handed back to the government for new homes. As previously noted, the tracks in Mumbai and Chennai (the site of India’s oldest track) seem to be on the verge of some vaguely similar fate. China was first mover in the anti-racing stakes, transforming the Shanghai track into a park back in 1952.  Now, one by one, all of the other British built tracks, which are often large stretches of green in now dense cities, are disappearing. Apart from India, Hong Kong is a notable exception.

Bovine stipends

After the Maharashtra government announced a daily subsidy for each cow of Rs50 rupees, the cabinet upped the number to Rs70.

Now, crocodiles are dancing in the streets

Vadodara (formerly Baroda ) is known for its nine days of garbas, big dances following the monsoon. This year, however, visitors have included at least 60 crocodiles, who have slithered/crawled/whatever on to the city’s streets and presumably want to take part in the celebration.

For distribution in America