This week, we talk about India’s growing economic might as the country’s government bonds get set to join a global index. We also talk about a bunch of important healthcare deals, the falling household savings rate and why global central banks are holding fire on interest rates.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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“Nothing else in the world…. not all the armies… is so powerful as an idea whose time has come,” French poet, dramatist and novelist Victor Hugo had said.
This week, after 27 long years, India’s parliament finally passed legislation to reserve at least 33% seats for women in the Lok Sabha as well as state legislatures. Clearly, it was an idea whose time had come.
Something similar happened this week in the world of finance.
JP Morgan Chase & Co, one of the world’s biggest banks, said it would include Indian government bonds to its global index for emerging market economies, the JPMorgan Government Bond Index-Emerging Markets, starting June 28, 2024. India will have a maximum weight of 10% on the index, the bank said.
Why is this significant? It is important as this could potentially drive as much as $30-50 billion in foreign inflows into India’s debt market, though it is unlikely to affect the equity markets.
This, in turn, could help push down bond yields and help the Indian government as well as local companies cut their borrowing costs. This will also help the government to manage the country’s current account deficit and support the rupee, which is trading near all-time lows against the US dollar.
But why is JPMorgan finally looking at India? The world of global finance, you see, is looking to diversify index constituents especially following the Russian invasion of Ukraine in the beginning of 2022 and in the wake of the fact that worsening economic conditions have made China unattractive.
That leaves India as the only other big emerging market that is not yet on the high table.
Indeed, India’s inclusion in the bond index will give global investors greater access to the world’s fastest-growing large economy that offers some of the highest returns in the region. Already, foreigners have raised their holdings of India’s index-eligible, high-yielding government bonds to almost $12 billion, from $7.4 billion at the end of 2022, in anticipation of the inclusion, show data from Clearing Corporation of India.
India as an economic powerhouse is an idea whose time may finally have come!
Show of strength
As it gets on the high table of global finance, India is also flexing its political muscle. A little bit of that was on display this week as New Delhi went on an overdrive to rebuff allegations by Canadian Prime Minister Justin Trudeau that Indian government agents were involved in the killing of a Canadian Sikh, who had been demanding a separate state of Khalistan, earlier this year.
After Trudeau effectively alleged that India plotted a political assassination on Canadian soil, India hit back hard and suspended visa services at its embassy in Ottawa and other consulates across Canada. New Delhi also asked Canada to reduce its diplomatic staff in India. The two countries also expelled each other’s diplomats in tit-for-tat moves.
But this is a political issue, right? So, why should investors like you and I be bothered?
Well, for one, both countries have a significant bilateral trade relationship and are heavily invested in each other’s economies.
Moreover, Canadian investment firms like Brookfield and Fairfax and its public pension funds like Canada Public Plan Investment Board, CDPQ, Ontario Municipal Employees Retirement System and the Ontario Teachers’ Pension Plan have been pouring billions of dollars into India’s infrastructure, renewable energy, real estate and technology sectors.
On the other hand, thousands of Indian students and young working professionals have been flocking to Canada to study or find work, in turn propping up the North American country’s universities and keeping wage rates in check.
These relationships have been built over decades. But, if this issue escalates, Indian and Canadian investors could feel the pinch.
We certainly hope that such a thing never comes to pass and that everything is resolved amicably.
Distress at home
Even as India rises economically and shows off its political might, not all seems to be well at home, pun intended.
Data released this week by the Reserve Bank of India (RBI) showed that the country’s household savings in 2022-23, at 5.1% of gross domestic product, were at a 50-year low as against 7.2% in the year before.
The RBI data indicate that there may be distress on two fronts—one, a jump in borrowings and second, a sharp decline in net financial savings by households. In fact, as a factor of the GDP, financial liabilities of households jumped to 5.8% in 2022-23, from 3.8% in the previous year.
Some economists argue that the two indicators signal that household income has not increased in line with the cost of living in India and that families are forced to borrow to meet their expenses.
But the government remained unfazed by these numbers and how they were being interpreted, rejecting the notion that Indian households were in any kind of distress.
The finance ministry said that people were buying houses and cars in ever larger numbers and that the fall in the household savings rate reflected a change in the types of financial instruments people were choosing to invest in.
SBI Research, the economic research arm of the State Bank of India, seemed to echo the government’s view. It said that household financial savings may have dropped because the ownership of physical assets has jumped. Also, it believes that the low interest rates since the pandemic and corrections in the real estate market may have led to a paradigm shift from household financial savings to household physical savings.
So, what should you do as a retail investor to up your household savings? As always, we say, keep investing regularly, but do so judiciously and cautiously, and you will be fine.
Status quo
While the Indian central bank will take a call next month on what it plans to do with interest rates, its peers from the US and the UK have hit a pause button.
The Fed Chair Jerome Powell-led Federal Open Market Committee (FOMC) unanimously voted to leave the Fed funds rate at a 22-year high of 5.25% to 5.5% after the two-day meeting held on September 19 and 20. The Bank of England, too, left its interest rate unchanged at 5.25%, a day after inflation unexpectedly fell by more than expected.
Having said that, interest rates may not be coming down anytime soon. Even though it kept rates steady, the Fed indicated that it expects one more hike in interest rates before the end of the year and fewer cuts than previously indicated next year. The Fed also sharply revised up its growth expectations for this year, with gross domestic product now expected to rise 2.1% this year.
So, what will the RBI do next month? We are not in the game of second guessing the mandarins at the central bank, but we promise to let you know whatever we hear!
In sound health
Those who grew up watching the world on their black-and-white television sets in the 1980s would remember the jingle “washing powder Nirma” that featured model and actress Sangeeta Bijlani swirling around in gorgeous dresses.
That advertising campaign helped make Nirma, founded in 1969 by Gujarati entrepreneur Karsanbhai Patel, a household name. Since then, Nirma has diversified into several businesses. And this week, it made another big move.
Nirma has struck a deal to buy a 75% stake in Mumbai-listed Glenmark Life Sciences Ltd from its parent Glenmark Pharmaceuticals Ltd for Rs 5,651.5 crore. It has also made an open offer to buy 17.33% more of Glenmark Life from the public shareholders.
The deal will help Glenmark Pharma sharpen its focus on its mainstay pharmaceutical manufacturing business. For Nirma, it will help it expand its business into the fast-growing market for active pharmaceutical ingredients, or bulk drugs that are used to make medicines. Indeed, Nirma has expanded rapidly into new areas with the help of big acquisitions in recent years. For instance, it bought cement maker Lafarge India for about Rs 9,400 crore in 2016 and then topped it up with the purchase of Emami Group’s cement business in 2020 for Rs 5,500 crore.
In other deals this week, Ranjan Pai-led Manipal Group bought an 84% stake in Emami Group’s AMRI Hospitals for around Rs 2,300 crore and Asia Healthcare Holdings, which operates Motherhood Hospitals and Nova Fertility Clinics, bought a majority stake in Asian Institute of Nephrology and Urology for Rs 600 crore. The AMRI deal will make Manipal India’s second-largest hospital chain after Apollo.
These deals add to the growing number of healthcare and pharma transactions after the Covid-19 pandemic brought the sector into greater focus. And there are more deals in the pipeline, so stay tuned.
Market Wrap
After touching their all-time highs earlier in the month, the two benchmark indices corrected a bit in the last five sessions, as investors, perhaps slightly unnerved by the Fed’s stance on interest rates, took some profits off the table.
The Nifty, which had gone past the psychologically important 20,000 mark, ended the week almost 2.4% in the red, as did the Sensex.
Bajaj Auto, Bajaj Finance, Tech Mahindra, Mahindra & Mahindra, Power Grid Corp of India, Eicher Motors, UPL, Coal India and ONGC were an island of green in a sea of red this week. Others that ended the week in positive territory included Hero MotoCorp, Axis Bank, Larsen & Toubro, Tata Consultancy Services and State Bank of India.
Nifty stocks that brought the index down included HDFC Bank, which lost some ground following a negative brokerage report. Others that ended in the red were Ultratech Cement, JSW Steel, Vedanta, Cipla, Wipro and Kotak Mahindra Bank. Reliance Industries. Dr. Reddy’s Labs, ICICI Bank, ITC and Tata Steel slipped as well during the week.
Other headlines
- Total Energies to invest $300 million in 50:50 JV with Adani Green Energy
- UBS says India among countries slow to approve Credit Suisse takeover
- Akasa Air battles pilots departure, accuses aviation regulator of “inaction”
- Wipro CFO Jatin Dalal resigns, Aparna Iyer to take over
- India Ratings lifts FY24 growth forecast to 6.2% from 5.9%
- NTPC mining arm to explore battery minerals overseas
- SEBI imposes Rs 6 crore fine on Dewan Housing’s former promoters for disclosure lapses
- Updater Services sets price band at Rs 280-300 a share for IPO
- RR Kabel closes almost 16% higher on stock exchange debut
- Madhusudan Masala IPO oversubscribed by 413 times
- Yatra Online, Signature Global IPOs fully subscribed
That’s all for this week. Until next week, happy investing!
Interested in how we think about the markets? Read more: Zen And The Art Of Investing
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