India Business and Finance, October 16th

What happened in the Indian business world during the past week.

Thriving India

1)     Inflation:

The consumer price index rose 5% year-on-year in September year-to-year, not a particularly good number but down from an 8% increase in April. Within the benchmark number, a similar scenario played out for perhaps its most important component. Food inflation was up 6.6%, again not a particularly good number, but again far better than the 10% increase in August. Some of the decline can be ascribed to base effect. And whatever the number, everyone in India on a tight budget (which may include everyone in India) is unhappy about rising prices. But the trend is improving.

2)    Factory output:

A closely tracked survey by the Centre for Monitoring the Indian Economy rose 10.34%, the best showing in 14 months, providing at least a suggestion that India can avoid the current global slowdown. Numerous key areas were up including manufacturing, mining, electricity, and capital goods production. The numbers were not all good, however. A look at narrow manufacturing segments by the Business Standard using government statistics showed that the output of tobacco, paper and fabricated metal products were all below their levels of a decade ago. Some of this reflects an evolution in India’s economy (cigarette consumption should decline) but a country intent on expanding manufacturing is probably not happy with a decline in metal fabrication.

3)    Quarterly profits:

Once all the numbers for the quarter ending in September are collected it is expected that profit growth year-on-year will be close to 20%. It is a reflection of the current high expectations that one Indian newspaper described that heady number as “somewhat disappointing.”

3)    Space-related

The India space-related economy will grow from $8bn to $44bn in a decade, predicts IN-SPACE, the government’s space regulator.

Thrivers in India:

The annual rich list compiled by Hurun India produced the usual plutocrats up top but the process of compiling the data also created a prosperity map, of sorts, for the country. The benchmark for wealth was (translated from rupees) $120m, enabling. 1,319 individuals to qualify. By industry,pharmaceuticals produced the largest number of rich by far (133) , followed by chemicals and petrochemicals (109), industrial products (96), software (92) and automotive (73). This year’s list included, for the first time, a private equity investor, Manish Kajriwal of Kedaraa (worth $360m). Among new entries were a 20-year-old (founder of Zepto, a fast delivery service) and a 94-year-old (the founder of Precision Wires India, the largest producer of the kind of copper wire which once was, and to a more limited extent remains, the core of industrial economies).

What Indians want/Striving India?

1)     For the common person:

A national consumer confidence survey showed intentions to spend more but only on essentials. Less than one-quarter of those surveyed intend to spend more on non-essentials, a number that has remained depressed since the covid-19 lockdown. The Financial Express has pulled together information on a growing market for used cars, traditionally the choice of the frugal buyer. Among the surprises in this market is the popularity of Ford, which has withdrawn from India. This at least hints that it may have misunderstood its position in the market.

2)    For those becoming a bit wealthier:

A report by the Economic Time citing sources in various sectors showed that sales of smartphones, side-by-side refrigerators and passenger cars have all leaned increasingly toward premium offerings, with luxury cars  hitting all-time records, albeit still a tiny number.

Slowing India

1)     India’s IT companies: A “mild recession”

India’s technology services companies have long been the driving force in the country’s growth. During the pandemic they shifted from being merely critical for the world to being super critical. Growth is now slowing with Tata Consultancy Services, the largest and most important, showing year-to-year profit growth in the recent quarter of under 3%, a consequence of weak demand overseas. IT firms report that many new assignments are to help clients cut costs, suggesting they are paring back internally. After years of heavy hiring, many Indian IT companies are themselves cutting back. The head count of Infosys, the second largest Indian IT firm, dropped 5% over the past year. For India and maybe the world this is a sobering sign. At the same time as revenue growth is tailing off, the IT firms are contending with wage increases. These are commonly ascribed to the boom in hiring and competition for talent that came during the lockdown. But there is also pressure to end the wage disparity between India and the west for a skill that is easily transportable – speak to a successful programmer and their aspiration is to emigrate to a better paying job outside the country.

Credible India

1)     Getting better (rise of the big four accountancies): Although the big four accounting firms have drawn much criticism–and some have been sanctioned in the aftermath of scandals– investors and creditors usually view them as more credible than the alternative. Skeptics of the Indian conglomerates run by Gautam Adani and Mukesh Ambani (Reliance), for example, often note their use of unknown local firms, which fans suspicion about their reported numbers.  In this light, a calculation by the Economic Times that the big four registered a record $4bn in Indian revenues over the past fiscal year (concluding March 31^st) suggests a growing willingness to meet international standards (the prior year number was not provided).

2)    Languishing (electrical power): India desperately needs power. In the odd structure adopted by the country, in between users and (usually private) producers there are often public “discoms”, or distribution companies, which buy the power and then distribute it for prices that are often softened for favoured groups including farmers. The problem is that these softened prices mean the discoms often cannot pay their own bills. According to the publication Mint, their debts have reached Rs6.2 trillion (US$7.4bn). Typically they get bailed out but only belatedly. For a power company to get paid can require a political dexterity that discourages efficient producers.

3)     Frightening (pharma). Reuters reports that one of the companies that produced cough syrup which killed multiple children in Uzbekistan has been allowed to resume production. 

Economic warfare

Two years ago, Chinese handset companies dominated the Indian market. Now, it is amazing they are still operating in the country. Employees of Vivo, a major producer, are being investigated by India’s financial crime cops for concealment in their visa applications and visiting a restricted area, while the company itself has been targeted for wide-ranging tax violations. The managing director of Lava International, which does assembly work for Vivo, was arrested in connection with the investigation into the Chinese company. Details remain murky. The company has said it remains committed to ethical principles and legal compliance.

Promising new business

Car scrapping

Tata, Suzuki Maruti and Toyota, which together account  for 65% of car sales in India, have set up scrapping facilities and more are coming. Changes are evident on the side of roadways which not long ago were lined with  banged up, abandoned cars, covered in dust. They have largely, but not entirely, disappeared.

What India loves:

In what surely must be an under-estimate, a record 35m viewers tuned into Saturday’s India-Pakistan match. Mumbai’s roads, normally parking lots on a Saturday afternoon, were suddenly drivable as crowds shifted to cafes that installed temporary screens for enraptured customers. In the evening, synchronized flashes of lights could be seen in the windows of chawls and the openings in slums as absolutely everyone seemed to be tuned into the game.

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