Evidence of a potentially large change in India’s banking system from Credit Suisse and Neelkanth Mishra’s India markets team:
Even within bank loans, which are losing share to bonds in corporate borrowing, [public sector, or PSU, banks] are losing share to private banks, being short of capital. In this environment, by allocating just Rs80 bn for PSU bank recapitalisation in the FY16E budget (half that of the previous year, and the lowest after FY10), the government has shown willingness to let PSU banks fall in relevance, and not perpetuate moral hazard by bailing out weak banks. This is a remarkable and unexpected change in stance, given the potential advantages in micro-managing three-fourths of the bank lending space in India.
And lo did the wails of certain politicians rent the sky. Read more
Have a chart Credit Suisse’s Neelkanth Mishra put out back in 2013, the same Neelkanth Mishra who has been arguing persuasively that if “activity in informal industries and rural areas were properly measured, India’s GDP would look bigger and more stable”:
Standard deviation of reported quarterly GDP growth of India is second lowest only to China, you say? Read more
Fair question, evidently.
And to answer it, no we’re not sure. But the fact it’s even close is the point. From Nomura:
After recording a deficit every quarter for more than seven years, we expect India’s current account balance to swing into a surplus of ~1.5% of GDP in Q1 2015 compared with our current account deficit estimate of 1.6% of GDP in 2014.
Switzerland’s “anyone can initiate a referendum if they’ve got enough signatures” society gets to vote on the “Save our Swiss gold” proposal this Sunday, which aims to make it compulsory for the Swiss Central Bank to hold at least 20 per cent of its assets in gold bullion and repatriate all Swiss gold that’s held abroad.
The proposal also plans to make it illegal for the SNB to sell any of the gold it accumulates. Ever.
What’s worth noting ahead of the poll, though, is how the naturally occurring phenomenon of “too many non-productive gold assets in our economy” has struck economies in the past. Read more
The Coalgate cancellation verdict is in.
India’s Supreme Court has decided to go ahead and annul all of the 218 coal licences handed out to businesses over the last two decades, bar a few belonging to state-backed companies.
Sucks for the private players on the receiving end (Jindal is off some 11 per cent at pixel) but apparently a win for Coal India:
It couldn’t have happened to a nicer behemoth. Read more
For those who don’t know, India is a big, extremely uneven, place. From HSBC (with our emphasis):
India is a federation, with the central and state governments having both separate and shared responsibilities. While central government policies and transfers shape state policy agendas, states still have a relatively high degree of autonomy. As a result, state policies vary greatly.
The rise of India can be seen in each state, but in some more than others. Between the 1990s and 2000s a handful saw average growth rates jump significantly – Uttarakhand in the north (8.5ppts) and Bihar (5.1ppts), Sikkim (8.4ppts) and Nagaland (4.7ppts) in the east.
And if you don’t believe United Bank of India about the first bit, just browse through F1-owning drink mogul Vijay Mallya’s Twitter feed. Then remember he’s the pioneer of the in-no-way tasteless Kingfisher calendar.
(Do make your own here, if you must.)
Of course, being declared a wilful defaulter due to a failure to pay back loans associated with the grounded Kingfisher Airlines might crimp Mr Mallya’s style somewhat.
Of course, everyone’s a winner when judgements start off with prose like this:
Coal is king and paramount Lord of industry is an old saying in the industrial world. Industrial greatness has been built up on coal by many countries. In India, coal is the most important indigenous energy resource and remains the dominant fuel for power generation and many industrial applications.
Sahara’s incarcerated “managing worker” Subrata Roy — who is in a scrap with regulators over $4bn worth of convertible bonds sold, oft to impoverished farmers, in 2008 — is after a dealroom at Delhi’s Tihar jail.
Can you blame him?
If you were sitting in jail waiting for a (roughly) $1.6bn bail to be posted while being given some 6hrs leave a day to negotiate the sale of of three trophy hotels, including the Grosvenor in London, the proceeds of which would go towards meeting that bail… wouldn’t you try to hunt down a little extra calm and negotiating space? Read more
Some numbers to understand the Sahara group, India’s hotel-to-banks conglomerate:
Rs 10,000 crore (roughly $1.6bn): the amount Subrata Roy, he of the “empire built on the poor“, must pay in bail if he is to be let out of Delhi’s Tihar jail after a five month stay.
Roughly $1.6bn: the combined estimated values of Mayfair’s Grosvenor House Hotel and the Plaza and Dreams Downtown Hotels in New York, all owned by Sahara.
Six hours: the amount of time per day Roy will be let out of jail to negotiate sales of the group’s hotels once a concrete offer is made. Read more
You’ll remember this from last year, we’re sure:
Our main finding is that, on average, [rural Indian] households earn negative returns on their investments in cows and buffaloes if labor is valued at market wages: we estimate average returns of negative 64% and negative 39% for cows and buffaloes respectively. If we value the household’s own labor at zero, estimated average returns increase, to negative 6% for cows and positive 13% for buffaloes… if cows and buffaloes earn such low, even negative, economic returns, why would rural Indian households continue to invest in them?
That, from Anagol, Etang and Karlan, led to a host of speculation about various economic and cultural factors which might explain India’s ability to slide past the “central tenets of capitalism”… h/t’s to the Onion all round. Read more
Want to know why Modi is so focused on energy reform?
From Goldman’s Tushar Poddar and team: Read more
UK Financial Investments Limited as a role model? An institution that’s supposedly become “subjugated to politics”?
We suppose it depends on your starting position. And if your starting position is in front of India’s state-backed banks, well…
When your bet is on policy certainty in India, maybe it’s time to reevaluate that bet…. From BofAML:
Ignoring the risk-love silliness, we think this means a whole load of policy certainty has been priced into Indian markets ahead of the Modi-led BJP’s presumed victory in the just finished elections. From BofAML again: Read more
Compare, from Nomura:
We’d like to preface this by stating that exit polls have had a patchy record in calling election results correctly in the previous two elections. Exit polls in 2004 and 2009 were proven wrong. However, we note that even if NDA achieves a 15% lower seat count than the average prediction of 285 seats, it would still place it in a comfortable position to form the government.
Contrast, from Eurasia Group:
In the last Lok Sabha election, in 2009, for example, exit polls overestimated the performance of the BJP and its allies by 4-25% while underestimating the Congress’s tally by 22-42%. Similarly, 2004 exit polls were off by a range of 22-53% for the BJP and allies’ total and missed the mark for Congress’s performance by 8-40%.
Hmmm. Read more
If we come, will they build it? Here’s the Indian economy charted, by Citi:
If you’re short the rupee* the past few months have been uncomfortable.
Not only have (somewhat dodgy) Indian polling data pointed consistently to a stable BJP government being formed after elections which started this week, but India has also managed to get its macro house into some sort of order.
From Goldman, for example: Read more
Giant Assamese hat or controversial new RSS uniform? Either way we doubt it’ll distract from the opposition BJP’s failure to publish its manifesto on Thursday. Voting starts on April 7, btw. Read more
“If you do a Volcker, you kill the supply side, and then you are in a bad situation,” Mr Rajan said during an interview in November. Erm…
If inflation truly is public enemy number one, then Indians at last have someone who may be up to the task. Step forward Raghuram Rajan, a few months into the role of central bank governor and India’s could-be Paul Volcker.
Awkward. But it’s his own fault. Read more
Worrying imagery aside, the comparisons between Narendra Modi and either Thatcher or Reagan stand up to at least some scrutiny. And, as we mentioned in a previous post, the intellectual ballast of India’s potential next leader may well be provided by two of India’s more ‘pro-growth’ sons — Jagdish Bhagwati and Arvind Panagariya. Read more
Or — watch the rate of stressed asset growth in the industry:
Turkey-like policy action is hypothetical, I would not venture there.
- Raghuram Rajan, RBI governor, Jan 29th. We’re assuming he meant he wouldn’t touch the hypothetical…
Anyway, this is how Citi’s David Lubin explains the rupee’s recent fortitude
already battered position and, perhaps, Rajan’s aggresive attitude to the Fed’s tapering: Read more
And on silent feet they… moved towards price stability with CPI inflation as the new nominal anchor.
The RBI’s report on how to revise and strengthen its monetary policy framework to make it more “transparent and predictable” may play a very large role in the regime change underway at the Reserve Bank of India. Admittedly, the report isn’t out until later in the month but considering the useful Stanley Fischer news hook, it seems rude not to mention Rajan’s potential to also labour to reduce the powers of the ofﬁce he holds, for the institution’s sake. Particularly when the institution and the country it resides in still lack a whole lot of maturity. Read more
Compare, commerce & industry minister Anand Sharma on Nov 8:
Goldman’s latest report on Indian economy and its eagerness to push the case of a particular political leader and his party exposes two things—Goldman is parading its ignorance about the basic facts of Indian economy; and it also exposes its eagerness to mess around with India’s domestic politics. It only makes Goldman’s credibility and motives highly suspect.
A few charts and some commentary plucked from a rather bullish note on India from Goldman’s Asia Pacific team:
“I still find it difficult to imagine a father presenting his favourite daughter with a certificate for a gold-linked exchange traded fund on her big day,” says one senior policy maker.
That’s from a long Diwali read on India’s gold obsession by Avantika Chilkoti and James Crabtree which is well worth your time and to which we might add a cheeky few thoughts — it seems the RBI’s attempts to offer alternative to India’s gold-lust says more than a little about the limitations facing the central bank and Rajan. Read more
The Indian government’s efforts to support the rupee seem, for now, to have worked:
Can you call this a shakedown? Probably not.