Indian Economy

[nwoodman]

Given the large exposure Fairfax has to India, a separate thread for macro related info

[nwoodman]

MS is out with an update on the Indian Economy.  A couple of graphs that may be of interest.  Chart pack attached.

 

“We expect cyclical recovery in subsequent quarters: While near-term risks have emerged due to supply-side shortages, at the margin the situation has been stable, and we expect the impact to be transitory. We expect vaccination rates to reach a critical mass by early next year, which will help in broadening the recovery, and external demand conditions remain supportive. As such we maintain our growth forecast at 10.5% for F2022e. Risks to growth outlook are balanced and stem from Covid-19 management / pace of reaching full vaccination, continued supply side disruptions which weigh on both growth and inflation negatively.”

 

 

 

india oct 21.pdf

Edited October 21, 2021 by nwoodman

[glider3834]

I am optimistic on India economy recovering post-covid but market valuations look very hot in India compared to other emerging markets- a lot of Fairfax India's holdings & FFH's holdings have had large run ups over the last 12 mths - I think we should all be prepared for more volatility & downside risk but given the wide FFH/FFH India valuation discounts  IMO I am not worried so much if we see some downside here on individual holdings

https://economictimes.indiatimes.com/markets/expert-view/market-very-frothy-exit-and-take-out-some-money-now-sandip-sabharwal/articleshow/86473289.cms

[nwoodman]

8 minutes ago, glider3834 said:

 

I am optimistic on India economy recovering post-covid but market valuations look very hot in India compared to other emerging markets- a lot of Fairfax India's holdings & FFH's holdings have had large run ups over the last 12 mths - I think we should all be prepared for more volatility & downside risk but given the wide FFH/FFH India valuation discounts  IMO I am not worried so much if we see some downside here on individual holdings

 

Agree, a good time to be taking assets public. .  I haven’t come across any news on the Anchorage float perhaps they are waiting for air travel to tick up some more.

[nwoodman]

A recent bullish piece on India by MS.  They are arguing for corporate earnings to compound 20-25% p.a. over the next 4 years.  
 

Their reasoning:

 

1. The policy intent has clearly shifted from boosting consumption via transfers to boosting growth via investments. Policymakers have been initiating reforms for a while now and we believe that the economy is now in a good position to reap the cumulative benefits from past reforms 

2. Macro stability indicators – which are symptoms of a weak productivity dynamic – are in good shape.

3. With deleveraging headwinds now behind, the global demand environment will turn much more supportive.
 

“The India story stands out now, not only from an absolute perspective but also from a relative perspective, because of this rise in the ratio of corporate profit to GDP. Our strategist for India, Ridham Desai, has been pointing out the fundamentals that will drive rising corporate profits. He notes that “with nascent signs of capex, supportive government policy for higher corporate profit share in GDP and a robust global growth outlook, India seems well placed to enter a new profit cycle. For an economy that is likely to grow at a nominal rate of 10-12% per annum, if the profit share in GDP hits 3.5% over the next five years, it gives us an annual compounded growth in earnings of ~25% for the broad market. Indeed, higher profits feed into real GDP growth and back into profits so a virtuous cycle unfolds with concomitant positive impact on share prices."

 

They explore some of the issues over the last 10 years,  sound familiar? Worth a read over the weekend, enjoy.

india - on the cusp of a virtuous cycle.pdf

[glider3834]

4 minutes ago, nwoodman said:

A recent bullish piece on India by MS.  They are arguing for corporate earnings to compound 20-25% p.a. over the next 4 years.  
 

Their reasoning:

 

1. The policy intent has clearly shifted from boosting consumption via transfers to boosting growth via investments. Policymakers have been initiating reforms for a while now and we believe that the economy is now in a good position to reap the cumulative benefits from past reforms 

2. Macro stability indicators – which are symptoms of a weak productivity dynamic – are in good shape.

3. With deleveraging headwinds now behind, the global demand environment will turn much more supportive.
 

“The India story stands out now, not only from an absolute perspective but also from a relative perspective, because of this rise in the ratio of corporate profit to GDP. Our strategist for India, Ridham Desai, has been pointing out the fundamentals that will drive rising corporate profits. He notes that “with nascent signs of capex, supportive government policy for higher corporate profit share in GDP and a robust global growth outlook, India seems well placed to enter a new profit cycle. For an economy that is likely to grow at a nominal rate of 10-12% per annum, if the profit share in GDP hits 3.5% over the next five years, it gives us an annual compounded growth in earnings of ~25% for the broad market. Indeed, higher profits feed into real GDP growth and back into profits so a virtuous cycle unfolds with concomitant positive impact on share prices."

 

They explore some of the issues over the last 10 years,  sound familiar? Worth a read over the weekend, enjoy.

india - on the cusp of a virtuous cycle.pdf 447.35 kB · 0 downloads

thanks nwoodman

[nwoodman]

1. FWIW, MS India snapshot attached. Air traffic continues to pick up.

 

“We expect recovery to gather further strength from 1Q22 as we expect vaccination rates to reach a critical mass by early next year, which will help in broadening the recovery, and external demand conditions remain supportive. As such we expect growth at 10.3% in F2022 and 7.8% in F2023. Risks to growth outlook are balanced and stem from Covid-19 management / pace of reaching full vaccination, continued supply side disruptions which weigh on both growth and inflation negatively.

 

2. A short article on Akasa, India’s new low cost carrier based at Fairfax’s Bangalore Airport.  They just pulled the trigger on 72 Boeing 737 Max at the Dubai Airshow. 
 

https://www.businessinsider.com.au/ultra-low-cost-airline-akasa-air-entire-aviation-segment-2021-11?r=US&IR=T

india_20211121_0000.pdf

Edited November 22, 2021 by nwoodman

[glider3834]

https://www.livewiremarkets.com/wires/what-you-need-to-know-about-india-s-structural-growth-story

 

We maintain a very positive view on India’s long-term structural growth prospects. This is because the country has strong demographics — its 1.4 billion population is not only behind China, but younger (with a median age of 28 years) and growing more rapidly.

India is expected to add 200 million people to its workforce between 2020 and 2050. As these extra hands join the workforce, they will contribute to GDP growth as well as add to the country’s consumer base.

Also, India has one of the lowest penetration of goods and services such as automobiles, white goods, electronic devices and services such as mortgages, credit cards and online travel.

Edited December 8, 2021 by glider3834

[nwoodman]

The following article suggests India’s position may be improved by the current crisis but they can’t overplay their hand.

 

India’s value as a democracy and capacity as the only other military power able to push back against Chinese aggression in Asia is not lost on the Quad. But a lot will depend on how well India — more nimble under Modi — articulates its position on Ukraine.  

 

“India is today in an enviable position because of years of careful diplomacy, and fortuitous geo-politics,” Aparna Pande, a South Asia expert at the Hudson Institute, a Washington DC think tank, told CNBC.

“The US and its partners — in Europe and Asia — need India on their side in the long-term peer competition with China. They are, therefore, more understanding of India’s predicament.”

 

But Pande cautioned that India’s reluctance, as a democracy and as a key member of the Indo-Pacific to support the liberal international order will be remembered. 

 

India faces a stark choice, said Bruce Bennett from the Rand Corporation, a think tank headquartered in Santa Monica, California.

“The key question is whether India will want to be known as a principled country or a nationalistic country. A principled country stands up against any violation of national boundaries, whether it is Russia invading the Ukraine or China invading parts of India,” he said.

 

“If India decides to ‘sit on the fence’ to maximize its national leverage and influence, I think many people around the world will lose sympathy for India’s concerns about its own territorial integrity.”

 

https://www.cnbc.com/2022/03/24/india-is-in-a-sweet-spot-courted-by-the-quad-china-and-russia.html

[nwoodman]

 

[Viking]

It looks like India will be a big winner as companies shift production from China. Apple doing this is a very big deal. 

—————

Apple Inc may make one out of four iPhones in India by 2025, JPMorgan analysts said on Wednesday, as the tech giant moves some production away from China, amid mounting geopolitical tensions and strict COVID-19 lockdowns in the country.

The brokerage expects Apple to move about 5% of iPhone 14 production from late 2022 to India, which is the world's second-biggest smartphone market after China.

It is also estimating about 25% of all Apple products, including Mac, iPad, Apple Watch and AirPods, to be manufactured outside China by 2025 from 5% currently.

 

https://www.business-standard.com/article/international/apple-may-move-a-quarter-of-iphone-production-to-india-by-2025-jpmorgan-122092100786_1.html

[nwoodman]

MS blue paper on India attached.  Thanks @Vikingfor the friendly reminder.  Key takeaways:

• India’s GDP is likely to surpass US$7.5trn by 2031, more than double current levels, making it the third-largest economy and adding about US$500bn per annum on an incremental basis over the decade.
• India's market capitalization will likely grow by over 11% annually, to US$10trn, in the coming decade.
• We estimate that manufacturing's share of GDP will rise to 21% by 2031, implying an incremental U$1trn manufacturing opportunity.
• We expect India’s global export market share to more than double to 4.5% by 2031, providing an incremental US$1.2trn export opportunity.
• India’s services exports will almost treble to US$527bn (from US$178bn in 2021) over the next decade.
• Credit to GDP rises from 57% to 100%, implying compound annual growth in credit of 17% over 10 years.
• India's per capita income rises from US$2,278 now to US$5,242 in 2031, setting the stage for a discretionary spending boom.
• The number of households earning in excess of US$35,000/year is likely to rise fivefold in the coming decade, to over 25mn.
• US$1.1trn incremental retail opportunity in ten years. E-commerce penetration to nearly double from 6.5% to 12.3% by 2031.
• Internet users in India to increase from 650mn to 960mn while online shoppers will grow from 250mn to 700mn over the next 10 years.
• 25% of incremental global carsales over 2021-2030 will be from India, and we expect 30% of 2030 PV sales to be EVs.
• India should hit a major inflection point for the next residential property boom in 2030 – aconfluence of high per-capita income, a mid-30s median age, and higher urbanization.
• India’s work force in the technology services sector to more than double from 5.1mn in 2021 to 12.2mn in 2031, leading to an increase in office absorption from 32-35msf pa to a run-rate of 45-50msf over the next 5-10 years.
• Healthcare penetration in India can rise from 30-40% now to 60-70%; implying 400mn new entrants to the formal healthcare system.
• The defense budget (US$18bn)is growing steadily(10%CAGR)–traditionally there has been large import dependence (about 60%) but there is now a strong thrust towards local manufacturing.
• US$700bn+in energy investments over the next decade as India accelerates its energy transition.

thenew_20221031_0000.pdf

[nwoodman]

Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History
 

https://hindenburgresearch.com/adani/

 

Still playing catch up after the holidays but I believe Adani was one of the parties who submitted an EOI for IDBI Bank

[ICUMD]

Very interesting developments.  

Hintonberg makes strong arguments against Adani.

 

This has the possibility of airing out a lot of dirty laundry right through to upper levels of government.

 

Just a month ago, an article was positing that Adani was too big to fail.  Let's see!

 

 

[nwoodman]

7 minutes ago, ICUMD said:

Just a month ago, an article was positing that Adani was too big to fail.  Let's see!

Enough to strike terror into the heart of any investor with more than one cycle under their belts

Edited January 26, 2023 by nwoodman

[ICUMD]

https://qz.com/for-india-the-adani-group-is-growing-too-big-to-fail-1849873489

 

LIC is a heavy investor in Adani.

Also, LIC is a large holder of IDBI, which it's trying to sell to bidders including Fairfax.

 

Very interesting.

[nwoodman]

The context is very helpful.  Thanks for the link

[nwoodman]

The butterfly flapped it’s wings… $100 bn and counting

 

Adani Crisis Deepens as Stock Rout Hits $107 Billion, Bonds Sink 

 

Gautam Adani’s businesses have lost $107 billion in a week, one of the biggest wipeouts in India’s history, after an explosive report by short-seller Hindenburg Research forced him to pull a stock sale at the 11th hour and led some lenders to reject his securities as collateral for client trades.

 

https://www.bloomberg.com/news/articles/2023-02-02/adani-stock-rout-deepens-after-flagship-firm-pulls-share-sale

 

[ICUMD]

Could yield some interesting opportunities for Fairfax India. 

[rohitc99]

39 minutes ago, ICUMD said:

Could yield some interesting opportunities for Fairfax India. 

This development is very positive for Fairfax India in more ways than one. For one, they will have less 'unfair' competition where political leverage is used to buy assets

[ICUMD]

Very true. If I'm not mistaken, Fairfax lost out to Adani bidding for the Ahmedabad airport, as an example.

[Spekulatius]

I first thought this is a SNL skid, but it’s not:

 

Edited February 3, 2023 by Spekulatius

[nwoodman]

Or The Onion. 

 

“For me the interests of my investors is paramount and everything is secondary. And to protect investors from potential losses we have withdrawn that deal”.

 

:LMFAO

[nwoodman]

The text on this tweet

 

 

[ICUMD]

'Vegitables and casseroles are very strong'

Definitely nothing to worry about. LoL

 

Seriously, what an embarassment for India.  From the homeland of people like Watsa, Nadella and Pichai.  This fool is the 'chosen one' to build India's infrastructure future?  

 

A strong F in convincing the world that corruption is not an issue when doing business in India.

 

OTOH The best outcome here is that he has to sell assets at reasonable valuation to raise cash.  This will help quickly diversify the investor pool.  Possibly attracting global infra asset managers.