In this edition, we talk about why the likes of Morgan Stanley and S&P Global are bullish on India and how economic indicators are looking up, even as the US just faced a Fitch downgrade. We also talk about why the government has restricted the imports of laptops and other electronics items, and what this might mean for you as a consumer.
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“To be the cynosure of all eyes, do the extraordinary when you are least expected,” the young Nigerian writer Ogwo David Emenike once said.
Emenike was speaking in a very different context of course, but had he uttered these words after reading the latest reports by Morgan Stanley and S&P Global, he may as well have been talking about India.
In fact, India’s status as the bright spot in an otherwise uncertain global economy seems to be shining only, well, brighter, as some of the most important voices are getting more bullish about the country’s future.
This week, global data, research, and analytics firm S&P Global said in a report that “everyone is watching India” at a time when the world is in the midst of disruptions.
“The trillion-dollar question is whether India can sustain high growth… Our answer to the sustained growth question is a conditional ‘yes’,” S&P Global said in its report titled “Look Forward: India’s Moment.”
“We expect India to grow 6.7% per year from 2023-24 to 2030-31, catapulting GDP to $6.7 trillion from $3.4 trillion in 2022-23. Per capita GDP will rise to about $4,500,” the firm said.
This report from S&P Global came even as Morgan Stanley upgraded its view on Indian markets to “overweight” from “equal weight”, citing easing valuations as compared to October 2022, when the global brokerage identified the onset of a new bull market in Asian and emerging market equities.
“Multipolar world trends are supporting FDI (foreign direct investment) and portfolio flows, with India adding a reform and macro-stability agenda that underpins a strong capex and profit outlook,” Morgan Stanley said.
These are not the only global agencies that have upgraded their India outlook. In July, the International Monetary Fund lifted its forecast for India’s economic growth by 20 basis points to 6.1%, citing the momentum from the January-March period when the economy expanded at 6.1% as against a majority estimate by economists of 5.1%.
Hitting a new high
S&P Global and Morgan Stanley’s rosy outlook wasn’t the only bit of good news this week. Private surveys showed this week that both manufacturing and services sector performed well in July.
India’s services purchasing managers’ index (PMI), a measure of economic activity in the services sector, also tracked by S&P Global, surged to a 13-year high in July.
The services PMI jumped from 58.5 in June to 63.2 last month. This is the highest since June 2010. But more importantly perhaps, the number has stayed above the key level of 50 that separates expansion from contraction for 24 months in a row.
However, input costs have been going up, leading to price pressures. In July, services providers’ input costs rose at the fastest pace in 13 months, with food, labour, and transportation costs seeing the most significant increases.
Meanwhile, the manufacturing PMI also grew at a fast pace, although it slowed a bit to 57.7 in July from 57.8 in June. The composite PMI—a combination of manufacturing and services indices–rose to 61.9 from 59.4.
All this will be music to the ears of the government, which is getting ready to host the important G-20 summit in September, as it will get to show India’s economic growth off to the leaders of the world’s biggest economies.
So, does this mean all of India’s economic woes will soon be a thing of the past? Well, not so soon, but hey, we seem to at least be headed in the right direction.
Bring your own laptop
Even as the PMI numbers show manufacturing activity cooling off slightly, the government seems to be looking to strengthen India’s manufacturing prowess, even if it means taking a protectionist stance.
The government this week imposed restrictions on the import of laptops, tablets, all-in-one personal computers and ultra-small computers and servers with immediate effect. Any entity or company planning to bring laptops and computers for sale in India will now have to seek a licence from the government for their shipments bound for India.
The latest move by the Directorate General of Foreign Trade (DGFT), a wing of the commerce ministry, aims to promote domestic manufacturing of these products under the recently renewed production-linked incentive (PLI) scheme for IT hardware. The last date to apply for the scheme in this product category is August 30.
Besides, India wants to reduce imports from countries like South Korea and China, from where a bulk of the electronics items are imported into the country.
This move is likely to have a positive impact on local electronics contract manufacturers like Amber Enterprises, Dixon Technologies and PG Electroplast, whose stocks rose following this announcement.
The decision will also impact companies that import bulk of their products from outside India. Tech giants like Apple will have to either start manufacturing their laptops in India or stop importing their gadgets to India.
The same rule will also apply to other PC manufacturers like Lenovo, Asus, Acer, and Samsung. This will likely lead to an increase in the price of current laptops, computers, MacBooks, and Mac Minis in the Indian market.
But does this mean you cannot bring a laptop into the country? No, it doesn’t.
People who travel abroad can bring along one laptop, tablet, all-in-one personal computer, or ultra-small form factor computer in their baggage without import restrictions when returning to India. The exemption applies to items bought from e-commerce platforms and shipped via post or courier.
Some electronics manufacturers are gearing up to set up shop in India, to manufacture their products locally.
Taiwanese electronics contract manufacturer Foxconn has committed to investing Rs 5,000 crore in Karnataka, to set up a facility, which it says, will provide employment to 13000 people.
Foxconn will set up a phone enclosure unit creating mechanical enclosures for iPhones, along with a semiconductor equipment manufacturing venture in collaboration with Applied Materials. These projects are in addition to the iPhone assembly plant, which the company has planned to set up at Devanahalli with an investment of about Rs 14,000 crore.
Fitch blow to US
While everyone seems to be impressed with the Indian economy, things are not looking particularly good for the largest one—that of the US.
This week, credit ratings agency Fitch Ratings downgraded the US’ sovereign credit grade by one level from AAA to AA+ due to ‘ballooning fiscal deficits and erosion of governance’ that have caused repeated debt limit emergencies over the past two decades. The move came after Fitch in May put the US credit on ‘Rating Watch Negative’ – an implicit warning that a downgrade may come.
Fitch’s action is perhaps the first since S&P Global had done something similar in 2011. The standoff then had raised the US Treasury borrowing costs by $1.3 billion that year, as per a 2012 report by the Government Accountability Office.
“Tax cuts and new spending initiatives coupled with multiple economic shocks have swelled budget deficits, while medium-term challenges related to rising entitlement costs remain largely unaddressed,” Fitch said.
How may the Fitch move affect India? Over time, a lower credit rating could raise borrowing costs for the US and may even impact emerging markets like India if foreign investors turn cautious.
Market Wrap
While the US stocks markets ignored the downgrade, the Indian stock markets were down more than 1% on Wednesday as investors turned cautious following the rating cut and outflows from foreign portfolio investors.
Over the past couple of weeks, the broader benchmark indices have been range-bound and have pared some of their gains that saw them scale lifetime highs, as investors look to take some profits off the table.
The 50-share Nifty ended the week down 0.6% while the 30-stock Sensex lost 0.7%.
The Nifty counters that gained the most were IT majors Tech Mahindra, HCL Tech, Infosys, Tata Consultancy Services and Wipro. Pharma companies Cipla, Dr. Reddy’s Labs and Sun Pharma and government behemoths NTPC, Coal India and ONGC rose, too. Others that gained were Adani Ports, Hindalco, Eicher Motors, JSW Steel and Grasim Industries.
Nifty stocks that lost some ground included Vedanta, auto majors Hero MotoCorp, Bajaj Auto and Tata Motors, Bajaj Finserv and its twin Bajaj Finance, and at least five government-owned counters—State Bank of India, Power Grid Corporation, Bharat Petroleum, Indian Oil and GAIL India. Others that ended in the red were ITC, Bharti Airtel, Titan and three private-sector banks—ICICI Bank, Kotak Mahindra Bank and IndusInd Bank.
Other headlines
- Walmart buys US investment firm Tiger Global’s stake in Flipkart for $1.4 billion
- Union MF hires former Edelweiss MF executive Harshad Patwardhan as chief investment officer
- Franklin Templeton appoints former ICICI MF executive Rahul Goswami as head of fixed income
- Adani-owned Ambuja to acquire Sanghi Cements at an enterprise value of Rs 5,000 crore
- Concord Biotech IPO opens for subscription; SBFC Finance IPO fully subscribed
- Jana Small Finance Bank refiles for IPO
- Mamaearth, Indegene, Vishnu Prakash R Punglia get SEBI nod for IPOs
- SEBI keeps NSDL’s proposed Rs 3,000 crore IPO in ‘abeyance’
- Tax credit helps Zomato report first-ever quarterly net profit
- Bharti Airtel Q1 revenue up 14.1% at Rs 37,440 crore, beats estimates; profit flat at Rs 1,613 crore
- Bharti Airtel prepays Rs 8,000 crore spectrum dues
- Adani Enterprises Q1 profit jumps 44% to Rs 674 crore on strong new energy business
- Tesla discusses India plans with commerce minister Piyush Goyal
- Mahindra’s EV unit raises $145 million from Temasek at a valuation of $9.8 billion
- GST collections rise 10.8% year on year to Rs 1.65 trillion in July
- Centre’s fiscal deficit at Rs 4.51 trillion in April-June, 25.3% of FY24 target
That’s all for this week. Until next week, happy investing!
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