India Business and Finance Weekly, April 9th

How India evolved over the past week

From hot to hotter

The past week was filled with signs of India’s strong growth but, as usual, there were caveats and the inevitable Indian legal/economic twist.

Manufacturing

HSBC’s purchasing manager’s index, which has been positive since July 2022, rose to its highest level since March 2008.

 Earnings

An analysis of the net profits of BSE 500 companies by The Business Standard showed earnings growth in 2023 of 17.4% compared to 14.1% for the S&P 500 in America. Surprisingly, though, given the scorching macro numbers, revenues of American companies grew faster than their Indian counterparts–6.2% compared to 4.6%. In both 2022 and 2021, Indian companies’ revenues grew faster than American ones.

Credit

A survey of rating agencies showed upgrades significantly exceeding downgrades, a consequence of consistent efforts by Indian companies to reduce financial leverage, the benefits of an expanding economy and government capital expenditures.

Basic industries - cement

India’s big cement companies have all pledged large expansions of capacity and have simultaneously announced price hikes. The combination may be the strongest indication of growth imaginable.

Hotels

More than $400m was invested in the Indian hotel industry in 2023, more than double the amount in 2022. The regional head of Marriott said 28 out of 30 recently signed Asian deals were in India. Hilton’s Asia-Pacific boss said he believes India’s hotel market may become the second largest in the world, trailing only America’s.

Military equipment

Arms exports, an area of emphasis for the Indian government, grew by one-third to $2.6bn. New defense “corridors”, meaning areas set aside for manufacturing by defense companies, have been established in Tamil Nadu and Uttar Pradesh and each have received significant investment commitments for products ranging from ammunition to aerospace to advanced electronics. Hindustan Aeronautics reported record revenues for its just concluded fiscal year. Its share price has risen from Rs262 just before the Covid lockdown to a new high of Rs3,581.

The Investment World

1. Public markets

The value of securities traded on the Indian stockmarkets during the fiscal year (ending March 31^st) exceeded Rs200trn ($240bn), a new record. The amount was up 51% from 2023. The number of trading accounts rose to 148m in February, up from 144m in January, 139 in December, and so on in what continues to be a continuous expansion of the industry. Meanwhile, in another milestone, the market capitalization of Indian shares crossed 400 lakh crores ($480bn) for the first time.

2.             Private markets

Jonathan Gray, president of Blackstone, America’s fourth largest financial firm, added his name to the list of prominent foreign executives who now make an annual visit to India. The firm already has $30bn in Indian real estate investments and $20bn in private equity investments and believes internal growth plus additional investment will add another $25bn over five years. Asked what he had told his local team to do, he replied: “more”.

Mr Gray’s sentiment, however, while universally expressed by all visitors, is not universally shared, judging from the numbers. Private equity investment in the recently concluded fiscal year fell from $46bn the year before to $24bn, according to Bloomberg. Funding of tech startups has been sliding as well, dropping 42% in the first quarter of 2024 from the first quarter of 2023. The shift reflects the failure of many investments that, because they are not listed on public markets, have just been a quiet blip on the broader positive India story.

Not everything works

Even in the visible economy, however, there have been stumbles. Thierry Delaporte, who in May 2020 was hired away from Cap Gemini to be the first expat in charge of Wipro, one of India’s signature IT consultancies, will depart. He was the rare outsider brought in by an Indian company and his mandate was to instill change. That occurred. Numerous senior executives left. But revenues declined this year in contrast to its major competitors. In Mr Delaporte’s defense, managing a large Indian IT services firm may be among the most difficult assignments in the world. The basic job is to function behind the scenes to enhance the performance of every other company in the world. To do so requires a deep understanding of all technological issues, present and future, while leading armies of engineers who, on the lowest level, come and go at head-spinning rates. There are no barriers to entry except corporate reputation. Competitors include clients who often decide that it is best to internalize the technology they have outsourced. Survival, in a sense, means being the smartest person in a room filled with the smartest people in the world. Infosys and TCL, the two largest Indian IT companies, have both made abrupt changes at the top in recent years but were able to do so seamlessly by briefly bringing back past leaders (the Infosys approach) or making internal changes (TCS’s). The new Wipo boss, Srini Pallia, was educated at the Indian Institute of Science, one of the handful of institutions in the country for which admission is a statistical miracle and whose graduates seed the top ranks of Indian and global companies. He previously headed Wipro’s key American operations. While Wipro will remain headquartered in Bangalore, it appears that Mr Pallia will be based in New Jersey which by itself will be an interesting experiment in global management..

International Trade

After negotiating a temporary low tariff rate on imported cars in exchange for a commitment to build production facilities, Tesla will import cars from its German operations to sell in India. India’s high tariffs on vehicles was an issue raised repeatedly by Donald Trump during his administration and the reality that a reduction will benefit the overseas branch of an American company could be an issue if he is re-elected. Meanwhile, Tesla is currently searching for a production facility and it is widely assumed it will choose Gujarat, the home state of Prime Minister Narendra Modi, which is seen as business friendly and has done an excellent job, beginning in the period when Mr Modi was the state’s chief minister, in building a supply chain for auto components.

International expansion

India opened a third post office in Antarctica, adding to ones established in 1984 and 1990. The new office will use a pin (zip) code from Goa which will process all letters. Collection will be once a year.

Imported labour

The Times of India reports that Brazilian models are the newest competitive threat to the domestic modelling industry, replacing Russian and Ukrainian models who had filled the international niche. The Brazilian models appear to be Indian, are less expensive to hire and, The Times of India reports, are more comfortable with lingerie shoots.

Hot constitutional issue

As temperatures rise, the High Court of Chhattisgarh, one of the country’s smaller states, has ruled that ice cream is not a luxury but rather an essential good and thus should be excluded from an 18% goods and services tax under Article 14 of the Indian Constitution (equal protection under the law). The tax authorities “ought to have taken into consideration the socio-political effect” the court ruled. While these effects are not entirely straightforward in a country that is increasingly confronting obesity and diabetes, the ruling was doubtless applauded by hundreds of millions of children who have been making exactly this point forever.

For distribution in America