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FPIs sold shares worth almost $4 billion in October alone
For the Indian equity markets, year 2018 will end as the worst in terms of foreign money outflows since 2008 when markets across the globe were reeling under the sub-prime crisis and Lehman Brothers filed for the largest bankruptcy in history.
In the Indian context, 2018 would also be only the third such year in the last decade when foreign portfolio investors (FPIs) would end a calendar year as net sellers of Indian shares.
Foreign investors, who have always been looked upon as the prime drivers of any bull run in the Indian equity market, have been net sellers at almost $4.8 billion or ?33,344 crore during the current calendar year, till date.
Further, the year also saw overseas investors selling shares worth almost $4 billion or ?28,921 crore in just one month — October — making it the worst-ever month in terms of FPI outflows. The previous high was seen in November 2016, when FPIs sold Indian shares worth ?18,244 crore.
Market participants are of the view that such significant outflows were primarily on account of the weakness in the rupee and the volatility of the stock markets that saw the benchmark Sensex touching an all-time high of 38,989 in August only to lose more than 9% or more than 3,500 points since then.
“The one big factor that spooked everyone, especially foreign investors, was the fall in the rupee that moved from around 64 level to 74 against the dollar during the year,” said Harendra Kumar, managing director, institutional equities, Elara Capital.
“There was also heightened volatility globally due to the concerns related to the trade war between U.S. and China that made investors stay away from the emerging market pack, including India. The bubble kind of situation in the mid-cap and small-cap segments at the start of the year also led to profit booking from such investors,” added Mr. Kumar.
While the benchmark Sensex had gained a little more than 4% or 1,413 points in the current calendar year, it is insignificant compared with the previous year’s rise of 7,430 points or almost 28% amidst robust FPI flows totalling ?51,252 crore.
Incidentally, when foreign investors pulled out a record ?52,987 crore in 2008, the 30-share Sensex had lost a whopping 10,639 points or 52.45%.
Neelkanth Mishra, co-head of equity strategy, Asia Pacific and India equity strategist, Credit Suisse, believes that even if volatility remains high in 2019, the impact on the Indian market would be moderate as foreign investors now have a lesser stake in the markets compared with some of the earlier years.
“… the impact should be somewhat moderated, given that foreign investors have not been meaningful buyers of Indian stocks for the past three years and are now accounting for less than a third of trading volumes,” he said recently while presenting the global financial major’s 2019 outlook for the Indian market.
Domestic support
Meanwhile, most market participants believe that the potential losses this year have been largely mitigated due to the strong buying support, especially in index constituents, from domestic institutional investors such as mutual funds and the Life Insurance Corporation (LIC).
Strong buying by domestic investors also helped the Indian stock markets overtake Germany for the first time ever in terms of market capitalisation. According to data from the World Federation of Exchanges (WFE), the market capitalisation of India was pegged at $2.06 trillion in December, slightly higher than Germany’s $1.9 trillion.
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India, along with other Asian nations, have not escaped the trade demand levied by the United States. President Donald Trump is keen to reduce the trade deficit with nearly every nation making the process in his words “fair and reciprocal”. Trump wants to the trade deficit eliminated as soon as possible and was embolden following his successful conversation with Europe. While there are verbal agreements in place with the EU to help reduce the trade deficit, this process has played out before with little success. The Trump administration is aggressively pushing New Delhi on the issues of medical devices, pharmaceuticals, dairy products and agriculture. Defense, aviation and energy as the three sectors which would play a key role in reducing the trade deficit over the long term. For example, US nuclear energy powerhouse Westinghouse is engaged in negotiations to build six AP1000 nuclear reactors in India as part of the landmark US-India civilian nuclear agreement. While the average tariff rate in the United States is approximately 3.5%, India’s is over 13%.
The US has imposed tariffs on steel and aluminum claiming risks to national security. Several countries are challenging the US claim. Meanwhile, the US is claiming that since national security is a legitimate reason for the US tariffs, the retaliatory tariffs are illegal. According to different sources of market news, other countries, including India, have indicated they will retaliate.
In an effort to reign in the risk taken at Indian banks, the RSI has been looking for more oversight powers, The RBI has been demanding more powers to regulate state-run banks, while the government has been maintaining that the powers available are adequate. This comes following a spat that the government and the central bank have had over the future direction of interest rates. The Reserve Bank of India hiked rates for the first time since 2014. However, it maintained a neutral stance, suggesting that the tightening cycle may be modest. Governor Patel said that the hike was not aimed at defending the rupee. Regardless of the motive, India has joined the list of EM countries that are tightening policy even as the Fed continues to hike rates. India’s credit rating is now poised to climb higher, after facing a potential downgrade earlier in 2018.
The government has made it clear that the RBI has enough powers to deal with any situation arising in any bank. The finance ministry has listed the powers that the central bank enjoys under the Banking Regulation Act, 1949. It has also listed the powers that the RBI has with regard to nationalized lenders.
India’s Industrial Policy Could Bring Down Power Costs
The new industrial policy is likely to provide subsidized electricity to farmers and listing of distribution companies to promote transparency. The power tariff for the industry in India is very high compared to that in developed countries and other emerging economies, and there is a need to bring it down with a view to promote making power within India.
As India takes over operations in the Iranian port, the possibilities and challenges are huge
The opening of the first office of Indian Ports Global Limited at Iran’s Chabahar and the takeover of operations of the Shahid Beheshti port is a milestone in India’s regional connectivity and trade game plan. Chabahar port opens up a permanent alternative route for trade with Afghanistan and Central Asia, given the hurdles in the direct route through Pakistan. It facilitates India’s role in Afghanistan’s development through infrastructure and education projects. And it gives India’s bilateral ties with Iran, a major oil supplier and potential trade market for India, a big fillip. India has helped develop the Shahid Beheshti port with these outcomes in mind, and has been given the contract to manage it for 18 months. It will be important to operationalise the port quickly and smoothen the route to Afghanistan. The decision by India, Afghanistan and Iran to hold an international event in February 2019 to promote Chabahar and to study ways to make the route more attractive and decrease logistic costs is timely. About 500 companies have registered with the Free Trade Zone authority there. While keeping timelines and delivery of New Delhi’s commitments will be key to the port becoming a regional hub for transit trade, steel and petrochemicals, it will be necessary to encourage Afghan companies to use the route more, in line with President Ashraf Ghani’s desire to have a commercial fleet under the Afghan flag setting sail from Chabahar.
Visions of Chabahar’s immense potential as a game-changer for prosperity and stability in the region must, however, necessarily be tempered by the reality of geopolitical challenges. The Chabahar port has received a waiver from the U.S. sanctions on Iran for the moment, but these concessions could be withdrawn any time, given the constant upheaval in the administration. The possibility of the withdrawal of U.S. troops from Afghanistan, after the pullout from Syria, will add to security concerns for Afghanistan and impact on the Chabahar route as well. Meanwhile, the reconciliation process with the Afghan Taliban is likely to see the regional powers, the U.S. and Russia engaging Pakistan more. This could give Islamabad space to play spoiler in Chabahar, which is seen as a rival warm water port to Pakistan’s Gwadar. That the Afghanistan government is hedging its bets on trade via Chabahar too is clear: in recent months, special cargo corridors have been opened with China, Kazakhstan, Turkey, Europe, Russia, the UAE, and Saudi Arabia, with more trade diverted through them than with traditional partners Pakistan and India. With Chabahar, India has done well to keep a place in the intricate connectivity network of the region. Given all the competing interests that criss-cross over Chabahar, it will require sustained and nuanced diplomacy to stay ahead in this game.
Just in case anyone hasn’t noticed, India is ending its love affair with the small. Anything we do must be big now. Two months ago, Prime Minister Narendra Modi inaugurated the world’s tallest statue, the 182-metre Statue of Unity, in a tribute to the “Iron Man of India”. Costing nearly ?3,000 crore, it drew its usual bunch of naysayers. Could the money not have been put to better use? India doesn’t care. The early reports are that the statue is drawing huge crowds of up to 30,000 a day, and that brings its own positive economic activity. It does not matter what you build, for building anything brings jobs and livelihoods, whether it is a statue, a highway or a temple.
A nation that once idealised the small, the kirana shop, the roadside temple, is now thinking Walmart. Ideas of what to build may be coming from political motivations or religious ones, from the humble need to give back to society or personal hubris, but there is no doubting the emerging Indian hunger for scale and size. Forget the Sardar statue for a moment. Consider just a few recent projects in the realm of the religious and the spiritual. In Coimbatore, the Isha Foundation of Sadhguru Jaggi Vasudev built a 34.3m-high statue of the Adiyogi, or Lord Shiva. In Hyderabad, the world’s second largest sitting statue is being built as the Statue of Equality, to commemorate the 1,000th birth anniversary of the Vaishnavite saint, Sri Ramanuja. The statue, which will be 65.8m in height, will use 120kg of gold. It will be two-thirds taller than Christ the Redeemer in Brazil. When finished, it could cost upwards of ?700 crore. Clearly, the new state of Telangana is not unhappy that a spiritual destination to rival Andhra Pradesh’s Tirupati is in the making. Whatever brings in the devotee brings business and revenue.
Iskcon, the International Society for Krishna Consciousness, wants to build the world’s tallest temple soaring up to 213m near Mathura. It could cost upwards of ?300 crore. The Uttar Pradesh chief minister has promised an even taller 221m-statue of Sri Ram on the banks of the Sarayu in Ayodhya. So, Ram Mandir or no Ram Mandir, the physical presence of Sri Ram will tower over the horizon, assuming soil conditions permit.
What is happening? And why is one writing about statue- and temple-building in a column that largely deals with economic topics? The answer is that the spiritual and the temporal converge into business opportunity and livelihoods at some point. The same thought process has made Baba Ramdev of Patanjali Yogpeeth a giant fast-moving consumer goods (FMCG) player that could, if he gets the business model right, rival the Hindustan Unilevers and Colgates of the world, with the Baba playing yoga guru, brand ambassador and entrepreneur. Sri Sri Ravi Shankar and Sadhguru Jaggi Vasudev are going upscale in their spiritual and business operations. Yoga, meditative techniques and philosophy—and everyday FMCG goods—are their “products”.
After centuries of thinking in terms of limitations rather than potential, an aspirational India is rediscovering its ancient mojo, where building big and beautiful was the way to prosperity. Narendra Modi and Yogi Adityanath may have politics at the back of their minds, but they realize instinctively that Indians are no longer content with “povertarian” thinking. This is the same thought that made Mukesh Ambani sink ?2 trillion or more in Reliance Jio to make India one of the world’s largest consumers of data. The goods and services tax (GST) is, indirectly, a fiscal goad to small businesses to get growing or get out the way.
Today, big is aspirational. Ordinary Indians want the biggest and most powerful gadgets, the best-paying jobs, the biggest malls—and big statues and temples to gawk at. Even the relatively poor are unwilling to accept jobs that pay breadline wages, which is one reason for the fall in our labour force participation rates. With acute hunger and poverty now shrinking to a few pockets, the poor are no longer obliged to work for a pittance. They are mounting a million mutinies to demand more and better jobs. Outside the arena of personal growth, few Indians are willing to accept an also-ran status for their country, whether it is in sports or other fields. Scale and size are an important part of the emerging Indian statement, and this is reflected in the new cultural, religious and political projects. It is about projecting power and economic clout. We are tired of being losers.
Despite the hubris surrounding this newer, bigger, shinier, taller, richer mindset, these projects will bring us huge economic benefits as new jobs and opportunities are created around tourism, trade and related businesses. The Walmartisation of the Indian mind is going to gather pace as India modernises and becomes a middle-income country over the next decade. It is interesting that the temples of modern India will not just be the IITs and IIMs that Nehru dreamt of, but actual temples and projects that boggle the mind in terms of scale and vision. It is good economics and leads to better livelihoods. It will also bring us bigger problems, but that is something we need to deal with later. For now, India’s ambition deficit is over.
The European Parliament recently approved the European Union (EU)-Japan Economic Partnership Agreement and the EU-Japan Strategic Partnership Agreement. The former, negotiated by the European Commission, is the first ever to include an explicit reference to the Paris climate agreement and the latter, the first ever bilateral framework pact between both sides.
The trade agreement will create an open trading zone covering 635 million people and almost one third of the world’s total gross domestic product and remove tariffs on industrial products in sectors where the EU is very competitive, such as cosmetics, chemicals, textiles and clothing, according to an EU press release.
The trade agreement will deliver significant and tangible benefits for companies and citizens in Europe and Japan, said European Commission president Jean-Claude Juncker.
Today’s vote follows a similar decision taken by Japan’s National Diet, thus concluding the parliamentary ratification of the agreement by both partners. It paves the way for the agreement to enter into force on 1 February 2019.
The trade agreement will remove the vast majority of the €1 billion of duties paid annually by EU companies exporting to Japan, as well as a number of long-standing regulatory barriers, for example on car exports. It will also open up the Japanese market of 127 million consumers to key EU agricultural products and increase EU export opportunities in many other sectors.
The Strategic Partnership Agreement will lead to further deepening of EU-Japan relations, strengthened foreign and security policy dialogue, and engagement across a wide range of global, regional and bilateral thematic issues.
It will boost dialogue and cooperation between the European Union and Japan on topics of mutual interest such as foreign and security policy, connectivity, climate change, environment, energy, cyber issues, employment and social affairs, as well as people-to-people exchanges.
Women hold up half of the sky, or so Communist China’s founding father Mao Zedong liked to say. These days, that’s certainly the case in Vietnam.
Throughout the country, many well-known businesses are run by women. There’s Mai Kieu Lien, who captured the rising middle class’s thirst for protein-rich milk drinks and built Vietnam Dairy Products JSC into a $10 billion empire. Then there’s Nguyen Thi Phuong Thao, founder of budget airline VietJet Aviation JSC, who became Vietnam’s first female billionaire – and not just because of its bikini-clad flight attendants. Vietnam’s hourglass Hanoi-to-Ho Chi Minh City geography makes flying an efficient option in a nation that’s yet to build a high-speed rail line between the two megacities.
Riding the consumer-spending wave lifted Cao Thi Ngoc Dung’s Phu Nhuan Jewelry JSC. And if you’re seeking an industrialist, look no further than Nguyen Thi Mai Thanh of Refrigeration Electrical Engineering Corp.
At 73 per cent, Vietnam’s female labor-participation rate is among the highest in the world. The country’s women are also avid business pioneers: For every male early-stage entrepreneur, there are 1.4 female ones, estimates Global Entrepreneurship Monitor. Women contribute 40 per cent of the nation’s wealth, nearly on par with China.
There’s a historical reason for this. With so many men killed during the Vietnam War, women had to fill the void. In 1976, there were only 95 men for every 100 women between the ages of 25 and 64. By 1986, when Doi Moi reform launched, women still comprised the majority of society and got a nice ride out of the move toward capitalism. You might say the spirit behind Rosie the Riveter, the symbol of American women who worked in US factories during World War II, is very much alive in Vietnam.
Even as Vietnam recovers from a bruising war and its gender ratio converges back to parity, women aren’t dropping out of the labor force. The government has working moms’ backs: Maternity leave mandated by law is a generous six months.
This is all music to foreign investors’ ears.
Consider why global investors prefer one developing country over another. With fresh memories of the billions of dollars in wealth created in China, many are looking for China 2.0. They’re seeking countries with the right demographics – young, eager workers building manufacturing hubs, and in turn, using fatter pay checks to buy their first cars or designer handbags.
Looking at the overall population, Vietnam is only the world’s 15th largest country, smaller than Indonesia, Pakistan, Bangladesh and the Philippines. But most of its rivals come with demographic dividend discounts. The women labor-force participation rate in Pakistan and Bangladesh, for instance, is a paltry 25 per cent and 33 per cent, respectively. Taking that into account, the real working age population (between 15 and 64) would be only 37 per cent and 45 per cent, instead of the official 61 percent and 67 per cent.
Rome wasn’t built in a day. When a country starts replicating China’s manufacturing model, it often has to export low value-added products first, such as apparel and shoes. While Vietnam is quickly moving up the ladder into smartphones and semiconductors, the biggest chunk of its exports to the US last year remained textiles. Who stitches clothes and sews shoes? Women.
The strong Rosie culture is one reason why Vietnam is the only emerging Asian nation outside of China that received net foreign portfolio inflows in this bear-market year. Many investors are betting Vietnam will be the big winner as the trade war between the US and China drags on. And even before the sparring started, Chinese companies, such as textile manufacturing giant Shenzhou International Group Holdings Ltd., had already opened factories there.
To be sure, it’s not all blue skies. According to McKinsey Global Institute, the perceived wage gap for similar work is much higher in Vietnam than in neighboring Malaysia or the Philippines. Unfortunately, just like China and India, boys are seen as the better sex – the sex ratio at birth is a stubbornly high 1.10 as women abort female babies. As the middle class becomes wealthier, women may be discouraged by gender income inequality and prefer to stay at home.
For the time being, though, Vietnam is still the hot destination for foreign investments, and it has its strong, capable women to thank.
Faults formula pertaining to devolution of IGST balance
Finance Minister Yanamala Ramakrishnudu on Saturday expressed concern that the Integrated GST (IGST) balance, up to an extent of ?1 lakh crore lying as on March 31, was distributed among the States to an extent of 42% as per the Finance Commission’s devolution formula after putting the entire amount in the Consolidated Fund of India.
At the 31st meeting of the GST Council in New Delhi, he said a sum of only ?50,000 crore should have been deposited in the Consolidated Fund and ?21,000 crore devolved to the States. The balance (?50,000 crore) should have been directly distributed to the States.
‘Loss to A.P.’
Had it been done so, the States would have got ?71,000 crore, instead of ?42,000 crore, he observed.
The Centre got ?29,000 crore additionally at the cost of the States, he said. Andhra Pradesh lost ?1,000 crore on that account during 2017-18, Mr. Ramakrishnudu stated, demanding that the amount be released immediately.
Mr. Ramakrishnudu insisted that since the finalisation of GST rates was the prerogative of the GST Council by virtue of it being a constitutional body, the Prime Minister’s announcement that the tax rates of 99% of the items would be brought to 18% or below was not appropriate. The Minister requested the Council to re-examine the proposal for exemption/reduction of tax on tamarind, fried gram, textiles, handloom goods, fishnets, etc.
CII said the total pecuniary relationship of an independent director with the company, its holding, subsidiary or associate company, or their promoters or directors, shall not exceed 25 per cent of his total income
Industry chamber CII has urged the government not to cap remunerations of independent directors under the amendments to the Companies Act, 2013. It appears from the ‘Report of the Committee to review offences under the Companies Act, 2013’ that the intent behind this amendment is to cover the remuneration received by an independent director within the meaning of ‘pecuniary relationship’ so that the independence of the director concerned does not get impacted, the chamber said in a statement Sunday.
“Any cap would be regressive to the current mechanism prescribed under the Companies Act, 2013 and the SEBI regulations. Obtaining income details of independent directors would be difficult as directors may not be willing to share the income information. This is so especially in the light of Data Privacy Laws,” it said.
The total remuneration of non-executive directors, including independent directors, is capped by Section 197 of the Companies Act, 2013, it added.
“A second cap on the remuneration of independent directors is not required,” it added.
According to the proposed amendments, CII said the total pecuniary relationship of an independent director with the company, its holding, subsidiary or associate company, or their promoters or directors, shall not exceed 25 per cent of his total income.
It said independent directors also contribute to shareholder value creation through strategy evaluation, risk management, governance and control.
“Caps on remuneration may discourage him from fulfilling this role. In fact, such an approach carries the distinct risk of converting independent directors into auditors, thereby leading to conflict and dissension in Board processes,” it said.
It added that there is already a dearth of quality independent directors and excessive regulations may result in qualified person hesitating to take up this role.
ONE of India’s biggest and international acclaimed textile firms Shreejikrupa Spinners is considering investing over $40 million towards setting up a plant in Bulawayo soon.
Industry and Commerce Deputy Minister Raj Modi told Sunday News Business that the Indian had shown interest in setting up a polyester manufacturing plant in Bulawayo. This comes after his successful business tour of the Asian country two weeks ago.
“I can confirm that Shreejikrupa Spinners has indicated intention to come and set up a polyester plant here in Bulawayo whereby the company will come with the latest technology of recycling plastic into polyester,” he said.
A number of textile players in most developed countries have resorted to recycling plastic bottles into soft polyester thread to make eco-friendly clothing.
Plastic bottles are made of polyethylene (PET), a form of polyester that is mostly associated with a fabric used in clothing and interiors. However, both are actually polymers, a derivative of fossil fuels. The fabric made out of the PET fibre is basically polypropylene and it is ten times stronger than a normal polyester fabric.
“The company officials expressed interest to come for feasibility studies as early as next month thus they are only waiting for us to give us the nod to visit the country. If they are satisfied with the prospects of recouping their investment they are likely to pour in as much as over $40 million into the project,” said Dep Minister Modi.
He said the project was expected to play a massive impact in the revival of Bulawayo’s industry and contribute immensely to the country’s economic turnaround efforts.
“The project will obviously benefit Bulawayo immensely in terms of employment creation, not only from it but downstream industries as well. It will obviously fill the massive void of unemployment, which has been accelerated by the effects of de-industrialisation. On the other hand the investor we are talking about has big capacity to fulfil the local demand for polyester because at the moment we are relying on imports,” said Dep Minister Modi.
ONE of India’s biggest and international acclaimed textile firms Shreejikrupa Spinners is considering investing over $40 million towards setting up a plant in Bulawayo soon.
Industry and Commerce Deputy Minister Raj Modi told Sunday News Business that the Indian had shown interest in setting up a polyester manufacturing plant in Bulawayo. This comes after his successful business tour of the Asian country two weeks ago.
“I can confirm that Shreejikrupa Spinners has indicated intention to come and set up a polyester plant here in Bulawayo whereby the company will come with the latest technology of recycling plastic into polyester,” he said.
A number of textile players in most developed countries have resorted to recycling plastic bottles into soft polyester thread to make eco-friendly clothing.
Plastic bottles are made of polyethylene (PET), a form of polyester that is mostly associated with a fabric used in clothing and interiors. However, both are actually polymers, a derivative of fossil fuels. The fabric made out of the PET fibre is basically polypropylene and it is ten times stronger than a normal polyester fabric.
“The company officials expressed interest to come for feasibility studies as early as next month thus they are only waiting for us to give us the nod to visit the country. If they are satisfied with the prospects of recouping their investment they are likely to pour in as much as over $40 million into the project,” said Dep Minister Modi.
He said the project was expected to play a massive impact in the revival of Bulawayo’s industry and contribute immensely to the country’s economic turnaround efforts.
“The project will obviously benefit Bulawayo immensely in terms of employment creation, not only from it but downstream industries as well. It will obviously fill the massive void of unemployment, which has been accelerated by the effects of de-industrialisation. On the other hand the investor we are talking about has big capacity to fulfil the local demand for polyester because at the moment we are relying on imports,” said Dep Minister Modi.
