India will overtake China in 2016: Goldman Sachs
Goldman Sachs sees India embarking on a new growth cycle, aided by healthier macroeconomic numbers, structural reforms by the government and higher investments. This might help make India the fastest growing major economy in calendar year 2016, overtaking China for the first time, the investment bank said. Goldman Sachs expects India to grow at 6.3% in calendar 2015, 6.8% in 2016 and at 7% or more till 2018. China’s growth rate in 2016 is expected to slow to 6.7% from 7% in 2015. According to Goldman Sachs’ chief India economist Tushar Poddar, lower fiscal and current account deficits and falling inflation, helped by lower commodity prices, and structural reforms being implemented by the new government will help boost the investment cycle in India. “We expect potential growth to rise from 6% in 2014 to 7% by 2018 due to rising productivity growth, in part due to increases in technology penetration, and acceleration in capital spending,” Goldman Sachs’ Asia Economics Analyst report, published on December 1, said. Incidentally, India’s potential growth rate was 7% a few years ago, but has come down due to lack of capex expansion and policy reforms, Poddar said on December 4 in an interaction with the media to discuss the contents of the report. Poddar said signs of economic recovery are evident from rising demand, higher commercial vehicle sales, shrinking credit spreads, long end bond yields coming down and equities markets that are at a record high. Once the states and the central government start awarding big projects to private contractors, revival in the investment cycle will gather pace. For now, the governments are awarding such big contracts to government-owned firms, Poddar said. The Telangana government in September awarded two big engineering, procurement and construction contracts to Bharat Heavy Electricals Ltd (Bhel). Goldman Sachs expects medium to high probability of some structural reforms taking place in the next few years and that should address macroeconomic impediments and reverse the lost economic momentum. It expects labour reforms to happen slowly. Indian firms will soon see better cash flow and balance sheet stress will reduce, the investment bank said. Goldman Sachs is bullish on Indian equities for calendar 2015, but does not expect foreign investors to be able to put as much money in Indian debt as they did in 2014. On a net investment basis, foreign investors have year-to-date bought $25.32 billion in Indian bonds; their equity investment for the same period has been $16.43 billion. This is the first year when foreign investors put more money in Indian debt than in equities. According to Goldman Sachs, the energy sector has a low valuation but will likely grow at a high rate in the next few years. The bank is also bullish on banks even as there could be some valuation risk, said Goldman Sach’s co-head of macro research in Asia, Timothy Moe. Goldman Sachs expects the rupee to significantly appreciate against the euro but remain in a tight range against the US dollar. That is because the dollar has been gaining strength against all currencies, led by US economic recovery. “Against the dollar, the best the rupee can do is remain flat,” Poddar said.
Narendra Modi getting rock star treatment from investors
With money managers pouring in a whopping $16.5 billion in Indian stocks, Prime Minister Narendra Modi is being treated like a rock star by investors around the world, a leading American financial daily has said. “Investors around the world are giving Modi, and India, the rock star treatment. Money managers have poured $16.5 billion into Indian stocks this year, the most of any developing country tracked by the Institute of International Finance,” The Wall Street Journal has reported. Noting that India’s S&P BSE Sensex has soared 35 per cent this year, closing at a record 54 times in 2014, the daily said investors are betting that Modi will introduce policies to jump-start India’s economy, boosting profits at companies ranging from banks to cement makers. The paper said economists predict India will expand at a faster rate this year, the only one of the BRIC countries – which include Brazil, Russia and China – expected to accelerate. The International Monetary Fund expects growth in India to reach 6.4 per cent next year, from 5.6 per cent this year, it said. For money managers who have to invest billions on behalf of large institutions, India may be one of the last developing economies of its size that can offer steady, highflying returns, the daily said.
Govt eases FDI rules for construction sector
The government on December 3 notified easier FDI rules for construction sector, where 100% overseas investment is permitted, which will allow overseas investors to exit a project even before its completion. It also said that 100% FDI will be permitted under automatic route in completed projects for operation and management of townships, malls and business centres. A press note issued by the department of industrial policy and promotion has clarified that the three-year lock-in will no longer apply and under normal circumstances, an investor can exit on completion of the project or even after the development of trunk infrastructure, such as construction of roads, water supply and drainage. The exit clause was seen as one of the key deterrents for overseas investors to invest in the Indian construction market. The government was keen to ease the rules for building townships, housing, built-up infrastructure and construction development projects as these are sectors with huge employment potential and boost demand for steel and cement. As a result, it has done away with the minimum area requirement for development of serviced plots, as against 10 hectares earlier. Similarly, in case of construction development projects, the minimum built-up area requirement has been cut from 50,000 square metres to 20,000 square metres moves that real estate consultants say will result in development in central Delhi and South Mumbai where land is scarce and expensive. Given the large area requirement, FDI was largely limited to the sub-urban areas. Further, to boost low-cost housing, joint ventures and investors committing at least 30% for such projects will be exempted from minimum area as well as capitalisation requirements. The press note, based on a cabinet decision, has also reduced the minimum capital requirement to $5 million, which has to be brought in within six months of commencement of the project.
Hettich plans Rs 400 crore investment in India
German furniture and interior fittings major, Hettich India, on December 8, announced that it plans to invest around Rs 400 crore in the country in the coming three years, which will be aimed at realising the company’s plans of increasing manufacturing, rolling out more products and turning India into a major exporting hub. Hettich has already invested around Rs 100-110 crore each for establishing two manufacturing plants in Vadodara in the last few years, and it remains bullish on India. “With the recent surge in the economy and the new government stressing on smart cities and housing for all, India is our most promising market,” Hettich Chairman and Global CEO Andreas Hettich said. Marking a new chapter in its India story, the company unveiled the state-of-the art Hettich Innovation Centre in Bengaluru on Monday, a first-of-its kind in the world. Built at an investment of around Rs 5 crore, the 4,000 sq ft innovation centre will showcase the company-produced premium fittings, products and their applications in modern furniture design to customers and designers with prior appointment. The centre will also house a team of experts available for consultation on design services to customers, and is aimed at giving a touch-and-feel experience to the consumer and to demonstrate the possibilities that the company’s fittings offer. “With the Hettich Innovation Centre, we hope to bring the vast range of all that we offer to the foreground and actually show what our fittings can actually achieve for our customers,” according to Hettich India Managing Director Anil Goel, who added that the company has also beefed up its design services arm.
Qatar prince ready to invest Rs 1 lakh crore in 10 smart cities
The government may be inviting the Americans, Chinese and Japanese to invest in India, but just one person is ready to put in Rs 1 lakh crore over the next five years. Enthused with the new government’s spirited approach towards new investment, a prince of Qatar, Hamad Bin Nasser A A Al-Thani, member of the ruling family, is looking at investing the sum in at least 10 smart cities. The 51-year-old Qatari prince has already tied up with a 31-year-old Delhi-based businessman, Mitesh Sharma, for taking the investment forward through projects in real estate, sea ports and airports, besides smart cities. According to a person working for Hamad, the two recently registered a company, NRS Enterprise Pvt Ltd, in India through which the investment would be routed. “Prime Minister Narendra Modi’s ambitious ‘smart cities’ project has caught the attention of the prince. The investment will be made over the next five years,” said the person. The investment announcement came after the two partners met Uttar Pradesh chief minister Akhilesh Yadav on November 20 and his Andhra Pradesh counterpart, Chandrababu Naidu, on November 22. The focus of this huge investment is on 10 smart-city projects in a first phase, besides power, solar energy, infrastructure development, health care and education. They are aiming for the first project to take off by February-March 2015. The Union government has decided to support the development of 100 smart cities in the country. According to the high power expert committee (HPEC) on investment estimates in urban infrastructure has assessed a per capita investment cost of Rs 43,386 for a 20-year period. Their estimates cover water supply, sewerage, sanitation and transportation. Hamad, through his Qatari outfit, Nargis Arts recently formed a joint venture — Kings Kraft Frames 24 Pvt Ltd — with Sharma for producing five Bollywood films. Sharma, with interests in granite mining and real estate, is also a partner with Hamad in Qatari construction business. The two partners have already signed a memorandum of understanding with the Andhra Pradesh government for a smart city project. Investments worth Rs 12,000 crore and Rs 60,000 crore would be made in Uttar Pradesh and Andhra Pradesh, respectively. Besides, Rs 38,000 crore would be diversified in sectors like power and natural gas, said a statement on behalf of the two partners.
Domestic consumption, political stability position India as top investment destination.
After foreign portfolio managers pumped more than $40 billion into Indian stocks and debt on hopes of an economic revival with the new Narendra Modi government at the helm, investors are now turning toward Indian private equity funds. After two years of muted fund raising by India-focused PE funds, marquee investors are now loosening their purse strings. Renuka Ramnath's Multiples Alternative Investment has raised $350 million toward the first close of its second fund. Global institutional investors such as Ontario Teacher's Pension Fund, Canadian Pension fund CPPIB, Sofina, PGGM, BlackRock and CDC have invested in the first round of the $550 million fund. Last week, Rabo India's agri business fund raised $200 million toward the first close. "Growing domestic consumption, results of the recently concluded general elections that gave stability at the Centre and declining global commodity prices have created a trifecta to position India once again as one of the top investment destinations in the world," said Kalpana Jain, senior director, Deloitte India, in a recently released report. The fund raising by Multiples is significant considering that limited partners or LPs, investors in such funds, have been disappointed with India investments. Ramnath declined to comment when asked about the fund raising on the sidelines of a recently concluded conference on private equity. Most investors have been worried about their return on investments as a slowdown and macroeconomic factors, currency depreciation and corporate governance issues have been hampering investments. According to industry experts, India has returned only three cents for every dollar invested by overseas investors. "As business sentiment improves, the stock market too has seen a gain of over 25% (January 1-September 30). This would be beneficial in creating conditions for exits in the coming years," Jain of Deloitte said. After successfully deploying most of its first fund of $405 million raised in 2010 in more than 10 companies such as Arvind, Cholamandalam Investment and Finance, Delhi Very, Indian Energy Exchange, PVR, South India Bank, Sara Sae and Vikram Hospital, Multiples is now targeting a $500 million fund. Ramnath's team started soft marketing the new fund after the avowedly pro-business Modi government came to power. "Multiples is bracing towards the first close of its second fund. They have raised around $350 million already," a senior private equity professional said on condition of anonymity. Nupur Garg, regional lead, private equity funds, South Asia, at IFC, said, "LPs want to now see the track record and concrete investment plans before parting with their money to new funds. Until the time they see some money coming back, new investments are going to be tough." She was speaking at the PE conference mentioned above. Global investors such as Ontario Teacher's Pension Fund, CDC, Dutch cooperative pension fund manager PGGM, Belgium based investment firm Sofina, Canadian Pension Fund (CPPIB) and Black-Rock have committed capital to the new fund. Multiples has already started looking for investment opportunities from its second fund. "The final fund raise is expected to close by next year. The first investment will be announced as early as January 2015," the managing director of a private equity fund said.
EU may lift ban on Indian mango, veggies
The European Union (EU) is likely to announce the lifting of a ban on the import of mangoes and some vegetables from India following an audit of packaging systems in India by a team from Brussels in September. A report following the EU’s Food and Veterinary Office visit to India to evaluate the system of official controls for the export of plants and plant products from India to the EU was presented and discussed during the committee’s meeting on November 25 and 26, official sources said. The ban, imposed due to concerns over pests and insects in consignments from India, was announced by the European Union’s Standing Committee on Plant Health on March 26, 2014. Businessmen from London and elsewhere who cater to the Asian clientele said that the ban had a “devastating” impact on them, and also on growers and importers based in India. Losses due to the ban have been mentioned as running into “hundreds of thousands of pounds”. Besides protesting against the ban, India has conveyed to EU, details about its upgraded packaging facilities. Officials said that pests and insects were found in 207 consignments of fruits and vegetables imported into the EU from India in 2013. The prohibited items represent less than 5% of the total fruits and vegetables imported into EU from India. A revision of the ban was originally scheduled to take place before December 31, 2015, but following the team’s visit to India, it is likely to be lifted shortly.
Manufacturing PMI rises to 21-month high in Nov
In November, manufacturing activity in India rose to a 21-month high, though that didn't lead to additional hiring, showed the HSBC Purchasing Managers' Index (PMI), released on December 1. The data also pointed to an uptick in price pressure, owing to a commentator on the report advising the Reserve Bank of India (RBI) to hold policy rates at its monetary policy review on December 9, despite persistent demands from India Inc to ease rates. For November, the PMI rose to 53.3 points from 51.6 points in October. Monday's data come a few days after official data showed India's economy grew 5.3 per cent in the quarter ended September, against 5.7 per cent in the previous one, owing to the manufacturing sector expanding only 0.1 per cent in the September quarter, against 3.5 per cent in the previous one. A reading of more than 50 in the PMI for manufacturing, based on a survey of about 500 private firms, means expansion, while a reading of less than 50 shows contraction. The survey includes output, outlook and confidence of respondents. The improvement in conditions in manufacturing, the 13th consecutive rise, was across segments, said Markit Economics, which compiled the data. It added the performance of the consumer goods segment was the best in the broad areas monitored. However, official data on the Index of Industrial Production (IIP) hasn't shown any sustained uptick in consumer goods this year, at least in the durables segment. In September, for instance, consumer goods production declined 11.35 per cent, while production of consumer non-durables rose just 1.5 per cent. In November, growth in production in the manufacturing sector was the highest since February, 2013, which Markit Economics attributed to rising new work inflows. "November data reinforced reports of stronger-than-expected demand, as new order growth accelerated to the quickest in 21 months," the firm said. In new orders, the consumer goods segment fared the best, Markit Economics said. During the month, foreign orders received by Indian goods producers continued to see strong growth. By and large, survey respondents attributed this to strengthening demand from key export clients. This trend, too, was in contrast to official data, which showed exports had declined in October. "Manufacturing activity accelerated further in November, led by higher output and new orders. Domestic orders saw the biggest increase, even as new export orders continued to be strong," said Pranjul Bhandari, chief India economist at HSBC. Despite accelerated expansion in output and new business, employment in the Indian manufacturing sector remained broadly unchanged, said a commentary released along with the data. Just a day ahead of the RBI's monetary policy review, Markit Economics said higher prices of metals, chemicals and energy led to a significant rise in input costs in November, the 68th month of cost inflation. Also, inflationary pressures intensified during the month, following three consecutive months of easing. Among the surveyed sub-categories, the sharpest increase in input costs was seen in the intermediate goods segment. Rising input costs, along with improving demand, drove output prices higher in November. The rise in output inflation rose to the highest in five months. "The sharp rise in input prices was surprising, but future prints might be lower as falling commodity prices eventually lead to softer intermediate goods prices," said Bhandari. The pick-up in output prices, he added, could signal a revival in pricing power among businesses. "Higher output and an uptick in final prices should convince RBI to stay on hold at its coming meeting," Bhandari said.
Indian software market grows 10.7% in H1 2014, says IDC
The Indian software market grew 10.7% in the first half of 2014, due to political stability and economic revival, research firm International Data Corp. (IDC) said in a report on on December 1. After the Bharatiya Janata Party (BJP)-led National Democratic Alliance government came to power, a few big software vendors closed some major deals in the banking, financial services and insurance space (BFSI), manufacturing, retail and ecommerce,which have been in the pipeline since early 2013, the report said. "Large as well as SMB (small and medium business) customers are looking at ways to curb their capital expenditure and are keen to embark on the cloud journey. This has led the vendors to make their licensing policies more flexible and easier so that existing customers could smoothly transition to a cloud environment," said Shweta Baidya, senior market analyst, software, IDC India. "Some vendors are offering exchange schemes to their customers to buy back their hardware in exchange of a cloud setup which is resonating very well with the small and medium business (SMB) market," added Baidya. The IDC report further said that firms offering virtualization and cloud services, such as VMware Inc., Salesforce Inc. and Red Hat Inc., generated good business owing to greater market awareness, while database and analytics companies such as Teradata Corp., Informatica Corp., Oracle Corp., Qlik Technologies Inc. and others registeredstrong double digit-growth due to widespread demand for customer insights and analytics. Going forward, IDC expects the software market to grow at a stable pace in the next five years (2014-2018) with a compound annual growth rate (CAGR) of 10.5%. Some of the areas which are expected to witness software uptake are mobile application development and mobile device management, security software, system software, analytics and engineering applications. Some of the sectors to watch out for in the future, according to IDC, include entertainment, retail and e-commerce, education, and hospitality. Government initiatives such as Mobile Seva, Digital India, Pradhan Mantri Jan Dhan Yojana will also trigger adoption ofsoftware solutions in the coming years, the IDC report said. Microsoft Corp. led the Indian software market with a 31.8% market share, followed by Oracle Corp. (12 percent market share), SAP SE (6.5%) and International Business Machines Corp. (5.5%).
DISCLAIMER
This newsletter is compilation of news articles from various business-e-newspapers and in no way is an endorsement or reflection of Embassy of India, Berne views.
