Tag: Indianomics

Chetan Ahya highlights one data point that’s more important for US Fed than GDP

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US Federal Reserve will watch the jobs data more closely than the GDP in the coming months before making any rate decisions, says Chetan Ahya, Chief Asia Economist at Morgan Stanley.

The world’s largest economy added 353,000 jobs in January, per data from the Bureau of Labor Statistics. The December data was also revised upwards to 333,000. The unemployment rate remained steady at 3.7% in January, but wage gains were higher than expected at 06% over December.

A strong jobs market means increased spending power, which makes it difficult for the Fed to combat inflation. Ahya, however, believes the January numbers were higher due to the residual seasonality effects, and it will start slowing down by the second quarter.

“There is a trend which is showing that the job trends are coming down. We get bumps up in a month or so but on average job trends have been slowing. That is what matters for the Fed more than gross domestic product (GDP) growth,” he told CNBC-TV18.

Along a slowdown in the jobs growth, Ahya also expects US inflation to narrow sequentially from the second quarter and therefore, he sticks to his view of a rate cut by the Fed in June.

Also Read | Japan loses its spot as world’s third-largest economy as it slips into recession

The US consumer price index (CPI) rose at 3.1% year-on-year (YoY) versus market expectation of 2.9%. The US producer price inflation, which is similar to the wholesale price inflation in India, rose by 0.3% month-on-month (MoM) versus market expectation of just 0.1%.

Ahya also shared his view on growing concerns over China’s aggressive price cuts and expanding global market share globally, and the impact of these actions on emerging markets (EMs) like India.

He believes investors will have to be watchful of competitive and deflationary pressures that China will send to the rest of the world.

“From a sectoral perspective, China has already been deflationary for some of the large items, low value-added exports like durable goods, white goods but at the margin where we are seeing greater pressure is the new energy transition-related goods, which is electric vehicles (EVs), lithium batteries, solar panels and even old generation chips,” he said.

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What this means for countries such as India, particularly in the case of a reelection of former US President Donald Trump, is the potential for an implementation of tariffs in the US. The projections are that the US could impose a 60% tariff on all imports from China, or a 10% tariff on all imports. Both of these scenarios will be negative for the region.

For the Reserve Bank of India (RBI) though, the headline inflation, particularly food, will remain the primary target for a rate decision, he stated.

Meanwhile, Sameer Goel, Global Head of Emerging Markets & APAC Research at Deutsche Bank, shared with CNBC-TV18, “We still think the Reserve Bank of India (RBI) will be in a place to potentially change its stance by April and maybe start cutting rates by June. We still think we will probably get about 100 basis points of rate cuts in FY25.”

For more, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s 8% growth dream within reach through fiscal restraint, says economist Barry Eichengreen

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Renowned economist Barry Eichengreen on Monday (December 18) said he is confident that India can achieve an 8% growth rate over the next decade if the government practices fiscal restraint and private savings rates increase, providing more funds for investment in education, healthcare, infrastructure, and industry.

According to official data released on November 30th, India’s economy grew by 7.6% in the September quarter, driven primarily by investments and fiscal spending, compared to 6.2% in the same period the previous year.

The Reserve Bank of India (RBi), in its recent Monetary Policy Committee meeting, raised the growth projection for the country’s GDP to 7% for the 2023–24 fiscal year.

Eichengreen emphasised the significance of domestic demand and spending for India. He stated, “India is not a big-time exporter. Domestic demand and domestic spending are very important for India. So I don’t think that slow global growth will really weigh on the Indian economy.”

Regarding inflation, Eichengreen believes that it won’t be a decade of high inflation, citing the commitment of central banks, including the RBI and the US Federal Reserve.

While acknowledging India’s high public debt, Eichengreen believes that India can manage the current situation, emphasising the need to address educational deficiencies in addition to previous efforts to improve infrastructure.

On China, Eichengreen predicts continued disappointment in economic growth, suggesting that China will contribute less to global growth, projecting a growth rate of around 4.5% in 2024.

China experienced a 6.3% growth in GDP during the second quarter, marking a modest 0.8% increase compared to the preceding quarter. However, this growth rate was slower than the 2.2% quarter-on-quarter pace observed in the first quarter.

Regarding the United States, Eichengreen expresses concerns about the Fed’s optimism about overcoming inflation, citing the current rate of close to 3%. He cautiously anticipates a soft landing for the US economy in 2024 but acknowledges that there is no guarantee, only hope.

Eichengreen predicts that interest rates in the United States will remain high for an extended period. He suggests that the Fed may cut rates less than market expectations unless a recession occurs in 2024.

In a scenario of a soft landing for the US, Eichengreen speculates that the Fed might cut rates only twice in the following year.

On Wednesday, December 13, the US Federal Reserve opted to maintain its key interest rate for the third consecutive time. This decision signals a potential conclusion to the recent series of rate hikes, which has been the swiftest in four decades, undertaken to combat persistently high inflation.

Additionally, the Fed’s policymakers indicated their anticipation of implementing three quarter-point reductions to their benchmark interest rate in the upcoming year. This projection contrasts with the expectations of financial markets and certain economists, who foresaw a total of five cuts.

Watch the accompanying video for the entire conversation.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s shadow banks are bracing for a cost spike and a credit squeeze

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI), on November 16, increased the risk weights on unsecured loans including credit card dues.

While this is applicable for all lenders, the non-banking financial companies (NBFCs), or shadow banks, in India are more vulnerable to the rise in the cost of funds resulting from the RBI decision.

For instance, Home First Finance said that the capital adequacy ratio — the buffer money that lenders keep to cover for possible defaults — will worsen by 100-200 basis points. One basis point is one-hundredth of a percentage point or 0.01%.

Similarly, SBI Cards, with a credit card RWA of 100%, will feel the impact along with other NBFCs. according to CNBC-TV18 analysis.

This is because these shadow banks have seen a big spurt in lending, particularly in the unsecured segment, in recent months.

Umesh Revankar from Shriram Finance, Nitin Chugh from State Bank of India (SBI), Suresh Ganapathy, a Banking Analyst at Macquarie Capital Securities, and Jinay Gala from India Ratings and Research collectively evaluated the repercussions on NBFCs, fintechs, and overall credit growth.

“As a percentage of the last 12 months incremental credit, almost 15% has gone to the NBFC space. That is a significant amount,” Ganapathy said. That’s nearly one out of every ₹6 lent in the last year has gone from the NBFCs.

An unsecured loan is granted without the need for collateral.

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The FIDC, representing NBFCs, has written to the RBI, requesting the removal of the heightened risk weight on bank loans. “Replacing this kind of funding through capital markets remains a quite dicey thing because NBFCs are also growing in size and scale and their incremental requirements would increase. So if the banks start to curtail their exposure to NBFCs, there could be a pricing markup on the cost of funds for NBFCs. Also, their ability to borrow from the capital market is limited,” Jinay Gala told CNBC-TV18.

Since NBFCs rely on banks for a big chunk of their funds, even the bigger banks may not be completely immune to any crisis in the NBFC segment.

For more, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s long-term appeal remains strong: Goldman Sachs’ Timothy Moe

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian market is relatively cheap and the country’s long-term appeal remains strong, according to Timothy Moe, Chief APAC Strategist at Goldman Sachs.

Moe highlighted that despite the market’s upward trajectory, with the Nifty experiencing a 9% increase year-to-date, there has been a narrowing of valuations. The price-to-earnings ratio (P/E) has decreased from 24 times to approximately 20 times, offering a relatively less expensive entry point.

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“We would be reasonably constructive on the investment flow outlook for India,” Moe stated, cautioning, however, that this optimism is set against the backdrop of intense competition from other regions.

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He highlighted specific investment themes, including the ‘Make in India’ initiative, the energy transition theme, and the defence spending theme. According to Moe, these themes offer substantial investment potential.

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On November 21, Mark Matthews of Bank Julius Baer & Co. also pointed out his preference for India over other emerging markets. “We like it, the price-earnings ratio is bang in line with the long-term average at about 19 times forward earnings and high teens, possibly even low 20s earnings growth, depending on what the oil price does. So why not be in India and we are,” he told CNBC-TV18.

For more, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rising unsecured loans and NPAs raise concerns in India’s financial sector

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a concerning development for India’s financial sector, worries are intensifying as unsecured loan growth continues to surge, and non-performing assets (NPAs) register an alarming increase. This pressing issue has raised red flags within the nation’s economic landscape, prompting a thorough examination of the potential risks associated with this rapid expansion.

The Reserve Bank of India (RBI) governor has been issuing persistent warnings to banks, non-banking financial companies (NBFCs), and fintechs regarding the alarming surge in unsecured loans.

Deputy Governor Swaminathan recently disclosed staggering statistics, revealing that unsecured credit has been growing at a remarkable rate of 23% over the last couple of years, far surpassing other lending categories, which have been growing at a more modest 12-14%.

Worryingly, data from the Credit Information Bureau of India Ltd (CIBIL) indicates that non-performing assets (NPAs) in the category of loans valued at less than ₹50,000 have surged to 5.4% as of June 2023, a sharp increase from 4.2% a year ago. Additionally, the number of individuals with four loans in this category has seen a significant uptick.

A panel of experts including Jairam Sridharan, Jairam Sridharan, MD of Piramal Finance, Krishnan Sitaraman, Senior Director and Chief Ratings Officer at CRISIL Ratings, and Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India (SBI), discussed the severity of the unsecured loan problem.

Sridharan, expressing his apprehensions, stated, “The worries are at the same level as when I last spoke maybe 4-5 months ago. I think there is more data now that gives more credence to what we have been thinking about. What we see today is that in the smaller ticket unsecured, risk has clearly started showing. 4-5 months ago, this was speculative. Now it is a fact.”

He further emphasized that risk increases as loan amounts decrease, stating, “The smaller you go, the higher the risk has gone. It is expected that the smaller ticket loans will be high-risk, so that is not an issue. The worry is that it has increased.”

However, Ghosh of SBI offered a different perspective, suggesting that the concerns may not be as dire as they seem. He pointed out, “While the concerns on this are well appreciated, I think numbers do not suggest any alarm as of now because according to bank credit data for the breakup of unsecured and secured credit, the compositional shift towards unsecured is actually not correct. It is continuing at 10%.”

Ghosh argued that both unsecured and secured loans have expanded since the COVID-19 pandemic.

Sitaraman from CRISIL Ratings explained, “If we look at the unsecured portfolio, I think we can split it into certain categories – one is the less than  ₹50,000 ticket size, then we have the ₹50,000 to ₹8 lakh ticket size, and larger than Rs 8 lakh is the last ticket size for a personal loan. In the more than ₹8 lakh category, the numbers are quite steady, the delinquencies are quite under control. Where we have seen some uptick among some of the players is in less than ₹50,000 ticket size. We have seen delinquencies move up there.”

For more details, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rupee will be under pressure against dollar, but will appreciate versus other Asian currencies, says JPMorgan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US dollar will continue to strengthen in the near future, said Luis Oganes, the Global Head of Currencies, Emerging Markets and Commodities Research at JPMorgan. Oganes said this prediction is grounded in the fiscal pressures faced by the United States and a slowdown in the European economy. Such conditions tend to bolster the US dollar, making it challenging for emerging market (EM) currencies to appreciate against it.

“We are expecting that the dollar will probably continue to appreciate. It is very difficult for EM currencies to appreciate against the dollar when the dollar is appreciating against other currencies,” Oganes told CNBC-TV18.

On the Indian rupee, Oganes noted that while the INR may face pressure in relation to the US dollar, it could appreciate in comparison to other Asian currencies. JPMorgan’s forecast suggests that the rupee is likely to remain around the 93-mark in the short term.

“For the time being, we do have a forecast of the rupee staying around 93. When you compare the rupee with other currencies in the region, my guess is that it is going to appreciate,” he added.

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Speaking on the energy sector, Oganes emphasised that when JPMorgan examines the intricate supply and demand factors influencing the oil market, they encounter difficulties in envisioning crude oil reaching the widely speculated levels of $100 or even $120 per barrel.

Oganes explained that many investors have been betting on such high prices, but the comprehensive analysis conducted by JPMorgan does not support these expectations. Instead, he pointed out that while price momentum might temporarily drive crude oil higher, the fundamentals of the market suggest a range in the 90s.

“When we look at the math of supply/demand in a very detailed way, we have a hard time getting to $100 per barrel, $120 per barrel, which is what many investors seem to be betting on. We are not overly concerned that oil is going to continue on an upward trajectory. Our forecast for the end of the year is crude would be in the middle 80s, so going below 90s,” he said.

JPMorgan’s year-end forecast for crude oil places it in the mid-80s, a level below the anticipated 90s range. This forecast is significant not only for investors but also for countries heavily reliant on oil imports.

One of the countries that stand to benefit from the projection of lower crude oil prices is India. As one of the world’s largest importers of crude oil, India’s economy is particularly sensitive to fluctuations in oil prices. The prospect of crude oil remaining in the mid-80s rather than climbing into the 90s or beyond is indeed good news for India’s economic stability.

Luis Oganes also addressed the monetary policies in Asia, particularly focusing on India. He pointed out that there is limited room for further rate cuts in the region.

Oganes also addressed the situation in Latin America, where some countries are grappling with very high real interest rates. He suggested that these nations might have an opportunity to reduce rates in the future.

“Only the emerging market central banks that hiked a lot where nominal and real rates are very high – we are talking about mostly in Latin America and maybe some countries in Central and Eastern Europe where you see policy rates in real terms of 4-5-6-7 percent, which is too high for any economy, maybe they have room to cut. Asia, which didn’t hike as much including India – the room for cuts in the near term, we don’t see that. This region is going to be more hostage to whatever happens with the US Fed,” he said.

During the interview, Oganes also highlighted the persistent challenge of inflation. While inflation has shown some signs of moderation, it remains below target levels in many economies. This scenario raises concerns for central banks, as they strive to strike a delicate balance between supporting economic growth and preventing runaway inflation.

Shifting gears to the United States, Jahangir Aziz, the Global Head of EM Economics at JPMorgan, shared an optimistic perspective. Aziz expressed confidence that the US economy is not on the verge of a recession anytime in the foreseeable future.

For more details, watch the accompanying video

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

IMF executive director envisions India as a top-two global economy with strategic policy choices

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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KV Subramanian, the executive director of the International Monetary Fund (IMF), believes that India has the potential to become one of the world’s top two economies, provided it makes the right policy decisions in the next 20-25 years.

“I believe that next 20-25 years is an opportunity for India that comes once in a few centuries. We have the opportunity to grow and become possibly one of the top two economies. So for the next 25 years India cannot afford to miss, we have to get our policy right, because an opportunity like this comes once in a few centuries,” Subramanian said in an interview to CNBC-TV18.

In a recent statement, Prime Minister Narendra Modi expressed confidence that India will ascend to the position of the third-largest global economy during his third term in office. He affirmed this with the words, “Yeh Modi ki guarantee hai.”

When the BJP government assumed power in 2014, India held the 10th position among the world’s economies, and it presently occupies the 5th rank in terms of GDP.

Regarding India’s growth prospects, Subramanian expressed optimism, stating that a 6.5 percent GDP growth rate should be attainable despite global economic uncertainties. He pointed out that private investment in India has reached a 14-year high, and government infrastructure spending is continuing, both of which contribute positively to economic growth.

In July, India’s retail inflation exceeded the Reserve Bank of India’s (RBI) acceptable threshold of 6 percent, reaching a 15-month high of 7.44 percent according to government data released on August 14th.

Subramanian emphasised that while the latest inflation figure showed a rate of 7.4 percent, a significant portion of this increase was driven by food inflation, which monetary policy has limited control over. His recommendation is to strike a balance between promoting economic growth and ensuring that inflation remains within manageable levels.

“India’s monetary policy I think will be focused primarily on our own inflation front. Even though the latest inflation print was 7.4 percent, a large part of that was driven by food inflation and that is something that monetary policy cannot control. So I would suggest that India should continue to focus on giving as much momentum to growth as possible while making sure that inflation does not go too much off the hand,” Subramanian said.

Recently, Shaktikanta Das, the Governor of the Reserve Bank of India (RBI) indicated that inflation could begin to ease starting in September. However, Das also emphasised that the RBI will maintain its vigilance and not lower its guard.

Watch video for entire conversation.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow