Moody"s Boosts Modi: India Gets First Sovereign Credit Upgrade Since 2004

Moody’s upgrade to India’s credit rating comes as a much-needed boost for India’s Prime Minister, Narendra Modi, who has been criticised for the fallout from the goods and services tax (GST) and demonetisation reforms. Indeed, Moody’s argued that Modi’s reforms will help to stabilize India’s rising debt levels. According to Reuters.

Moody"s Investors Service upgraded its ratings on India"s sovereign bonds for the first time in nearly 14 years on Friday, saying continued progress on economic and institutional reform will boost the country"s growth potential. The agency said it was lifting India"s rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as risks to India"s credit profile were broadly balanced. Moody"s upgrade, its first since January 2004, moves India"s rating to the second lowest level of investment grade. The upgrade is a shot in the arm for Prime Minister Narendra Modi"s government and the reforms it has pushed through, and it comes just weeks after the World Bank moved India up 30 places in its annual ease of doing business rankings.

Moody"s believes that Modi’s reforms have reduced the risk of a sharp increase in India’s debt, even in potential negative scenarios. On the GST reform, which converted India"s 29 states into a single customs union, the rating agency expects it to boost productivity by removing barriers to inter-state trade. In addition, the recent $32 billion recapitalisation of state banks and the reform of the bankruptcy code are beginning to address India’s sovereign credit profile.

"While the capital injection will modestly increase the government"s debt burden in the near term, it should enable banks to move forward with the resolution of NPLs."

Following the upgrade, India’s S&P BSE Sensex Index rose 1.1%, with metals, property and banks the strongest performers. The Sensex has risen 25% so far in 2017, while the banks sector is 42% higher. Retail investors have piled into financial assets and the banking system has been awash with funds since Modi unexpectedly banned high denomination bank notes last November.

As Reuters notes, the Indian government had been unsuccessful at persuading Moody’s to upgrade the rating in 2016.

Last year, India lobbied hard with Moody"s for an upgrade, but failed. The agency raised doubts about the country"s debt levels and fragile banks, and declined to budge despite the government"s criticism of their rating methodology. The government cheered the upgrade on Friday with Economic Affairs Secretary S. Garg telling reporters the rating upgrade was a recognition of economic reforms undertaken over three years.

The Rupee and Indian bonds also rallied on the Moody’s announcement – although some debt traders expressed scepticism that the rally was sustainable.

"It seems like Santa Claus has already opened his bag of goodies," said Lakshmi Iyer, head of fixed income at Kotak Mutual Fund said. "The move is overall positive for bonds which were caught in a negative spiral. This is a structural positive which would lead to easing in yields across tenors," she said. 

 

The benchmark 10-year bond yield was down 10 basis points at 6.96 percent, the rupee was trading stronger at 64.76 per dollar versus the previous close of 65.3250. "We have been expecting it for a long time and this was long overdue and is very positive for the market. Looks like sentiments are going to become positive," said Sunil Sharma, chief investment officer with Sanctum Wealth Management. However, debt traders said the rally was unlikely to last beyond a few days as the coming heavy bond supply and hawkish inflation outlook were unlikely to change soon.

 

"Who has the guts to continue buying in this market?" said a bond trader at a private bank.

India has basked in its status as the world’s fastest growing major economy and Moody’s forecasts suggests that it will continue to outpace China’s roughly 6.5% growth, but only marginally. In the fiscal year to March 2018, Moody’s expects the Indian economy to grow at 6.7% versus last year’s 7.1%. From Reuters.

Moody"s noted that while a number of key reforms remain at the design phase, it believes those already implemented will advance the government"s objective of improving the business climate, enhancing productivity and stimulating investment. “Longer term, India"s growth potential is significantly higher than most other Baa-rated sovereigns," said Moody"s.

Bloomberg published some initial reactions from portfolio managers and analysts.

Luke Spajic (head of portfolio management for emerging Asia at Pacific Asset Management Co. in Singapore)

• “The upgrade came sooner than expected. India has undertaken some tough but necessary reforms like demonetization and the GST, the benefits of which are yet to be fully calculated”


• “India is on the right long-term path with capital markets -- in both debt and equity -- pricing in potential improvements in investment quality”

Lin Jing Leong (investment manager, Asia fixed income, at Aberdeen Standard Investments in Singapore)

• “The upgrade has been long time coming” given Modi’s reform ambitions. “This is not a surprise -- we do believe all the rating agencies have been behind the curve somewhat”


• Initial Indian market reaction is likely to be knee-jerk, but we still expect dollar-India credit spreads, onshore India bonds and the rupee to continue outperforming the broader Asia and emerging-market bloc.

Navneet Munot (chief investment officer at SBI Funds Management Pvt. in Mumbai)

• This will boost global investors’ confidence in India, but factors like world monetary policy shifts and company earnings will also be key to foreign inflows.


• Investors like us who have long positions on India always expected an upgrade.


• The firm has been boosting equity holdings in Indian corporate lenders, industrial and telecommunications companies.

Nischal Maheshwari (head of institutional equities at Edelweiss Securities Ltd. in Mumbai)

• Equity markets have already given a thumbs up to the news”.


• It will lead to a reduction in borrowing costs, which is a major improvement.


• “For foreign investors in equity, it doesn’t change much as their concerns around high stock valuations remain. However, their commitment to the country is in place and the upgrade will only help reiterate their position”.

Shameek Ray (head of debt capital markets at ICICI Securities Primary Dealership in Mumbai)

• Foreign investors won’t be able to take full advantage of the positive sentiment from the upgrade as quotas for them to buy into rupee-denominated government and corporate debt are full, Ray says.


• “Whenever these quotas open up there will be keen interest to take India exposure,” but in the meantime Indian companies will get more access to offshore markets.


• “We could see them pricing dollar or Masala bonds at tighter levels”.

Ken Hu (chief investment officer for Asia-Pacific fixed income at Invesco Hong Kong Ltd.)

• The upgrade confirms Invesco’s positive view on India’s structural economic reforms.


• “With more political capital, Modi and his party are able to launch more difficult but more impactful structural reforms. The positive feedback loop will continue to lead to more credit rating upgrades of India in future”.

Chakri Lokapriya (managing director at TCG Asset Management in Mumbai)

• The upgrade is “very positive for banks, infrastructure and cyclical sectors”.


• “Banks will benefit strongly as their credit costs come down leading to a reduction in interest costs for infrastructure and manufacturing companies”.

Ashley Perrott (head of pan-Asian fixed income at UBS Asset Management in Singapore)

• The upgrade is a bit of a surprise, so the market is likely to see some initial bond-spread tightening.


• “But raising one notch does not make much difference from a fundamental perspective”.

Avinash Thakur (managing director of debt capital markets at Barclays Plc in Hong Kong)

• “The upgrade should help issuers from India as they are no longer on the cusp of investment grade”.


• “It makes a big difference to investors and we will see more dollar bond supply from India”.

"Everything's Worse" - Where India's Disintegration Is Set To Begin

Authored by Jayant Bhandari via Acting-Man.com,

Everything Gets Worse  (Part XII) –  Pakistan vs. India

After 70 years of so-called independence, one has to be a professional victim not to look within oneself for the reasons for starvation, unnatural deaths, utter backwardness, drudgery, disease, and misery in India.

Intellectual capital accumulated in the West over the last 2,500 years — available for free in real-time via the internet — can be downloaded by a passionate learner. In the age of modern technology, another mostly free gift from the West which has significantly leveled the playing field, societies that wanted economic convergence with the West, such as Japan, Korea, Singapore, HK, China, etc., have either achieved it rapidly, or have strongly trended toward it.

More than 28,000 children less than six years of age have died in just one province, Madhya Pradesh, over the past year. Because these deaths were due to diseases resulting from malnourishment, the government attributed every single death to disease rather than malnourishment.

Given that Indian prime minister Narendra Modi has been at the helm for only three years, it is hard to blame him in general for any of the above mentioned monstrosities marring daily life in India. The best the head of the executive of an extremely diverse and complicated country can achieve is to nudge the Titanic in the right direction.

The problem is that Modi has actively sped the Titanic toward collision with an iceberg, from which he himself will not emerge unharmed. He must be blamed for his naiveté, his upside-down understanding of economics and a complete lack of awareness of the realities of life, his narcissism and obsession of making a hero out of himself, and an utter lack of self-respect that drives him to seek solace in Hindu fanaticism. He and his party have been a catalyst fanning the flames of nationalism and fanaticism among Indians.

Farmers demonstrating in Delhi to point out their plight. More than 12,600 farmers and agricultural laborers committed suicide in 2015 in what is one of the world’s poorest countries. On average, life is worse for Indians than it is for Africans.

However, sociopaths exist in every society. If you get rid of one, another one enters the scene. In the end, it is Indians who deserve to be blamed for elevating Modi and his BJP to their positions. In the end, it is Indians who deserve to be blamed for hollowing out and destroying institutions the British left behind over the past 70 years.

In the irrational and tribal society of India, Modi perfectly symbolizes and unconsciously exploits the thinking process of the common man, who tends to deal with problems by doing even more of what created the problems in the first place.

A rational person (particularly one whose perception is otherwise skewed by political correctness) faces a huge uphill task and high levels of frustration, when trying to comprehend the actions of irrational people and societies. He won’t be able to understand that the irrationality of some people is so pronounced it can keep them from connecting two simple dots right in front of them.

Some 3,000 children die every day from illnesses related to poor diets. Of those who survive, 44% of the children under the age of 5 are stunted. 72% of infants and 52% of married women have anemia. With respect to this India is ranked on the same level as North Korea and Sudan.

It is difficult or me to judge whether Pakistan is better or worse off by comparison, but I received many complaints in response to an earlier article in this series (in which I had presumed Pakistan to be somewhat worse off than India), mostly based on tribalism. But let’s try to bring some balance to the issue anyway.

On the World Happiness Report, India is ranked in 122^nd position. Pakistan is ranked much higher, in 80^th  position. Pakistan’s  per capita GDP is US$1,550,  India’s is US$1,719. The difference is very small. Moreover, Pakistan has to spend a fortune to cater to refugees, to defend itself against problems from Afghanistan, as well as a much bigger foe, namely India. Pakistan also suffers from instability spilling over from Afghanistan and Iran.

As a result Pakistan is spending a much higher proportion of its government revenue on the military than India. If the external conditions of the two countries were similar, Pakistan would presumably be richer than India.

I also received several introspective messages from Pakistanis, who averred that Pakistan was descending into chaos, and similar statements were made by Indians as well. Most Pakistanis asked me to keep their names confidential, as speaking out against the Pakistani army or Islam could easily lead to unwelcome consequences such as beheading. A small minority in India is less concerned about speaking out, but this is changing quite rapidly.

A silly, well-orchestrated routine that is conducted every day at Indo-Pak border. Ironically, both Indian and Pakistani forces work and practice this routine together, to keep it well-synchronized. The bravado and bravery is all superficial theater.

Demonetization Pain Continues Unabated

When Narendra Modi announced on 8th November 2016 that he was demonetizing 86% of the monetary value of all currency in circulation, he gave three major reasons for doing so: to end corruption, to end terrorism and to eliminate counterfeit currency. Ironically, all three are now in far worse condition than they were previously, and even worse than the predictions I made in this series of essays (Part XI is linked here).

Many ATMs in India still dispense no cash. The economy is in shatters. This had to happen, as any new cash is rapidly moving under the carpets of the financial powerful that hoard currency. Small businesses are traumatized by the lack of access to cash – many are closing for good. People continue to avoid making non-essential purchases. Even food demand has failed to recover. Poor people very likely are still forced to go to bed half-hungry.

No-one knows whether there are famines in parts of India, as none of the  mainstream media are covering the issue. Not unlike North Koreans or the Chinese during the times of Mao, Indians today, particularly members of the so-called educated class, simply cannot see what Modi or their nationalistic paradigm does not want them to see.

Indian banks and other financial institutions are extremely unethical. Since privatization was implemented in the 1990s, they have charged fees and commissions for accounts that were never agreed upon. Indians never fight, so this continues. After the demonetization exercise, these mysterious charges have started to appear more often.

Then they deduct certain services and financial taxes, and most people don’t make the effort to try to understand them. Indians are getting very tired of the banks – not for moral, but simply for financial reasons. Bank websites are extremely unwieldy. They require a sequence of passwords and OTPs (one time pad codes), which have an automatic expiry date.

Getting the whole sequence right to make an online payment without having these websites freeze during the procedure leaves one with a sense of accomplishment. Most people prefer to walk down to their banks to get bank officials to perform such online transactions. India is simply not ready for the digital age. This experiment in going cashless will end in a disaster.

Similar to every tyrant, Modi likes to think that tax collection should be at the heart of society. He imagines a society in which subjects dance around the state. The problem is, one can perfect the tax system or minimize corruption, but with a per capita GDP  of $1,718, India simply does not have the required productivity.

Bank charges, rapacious tax authorities and massive amounts of time lost in dealing with the lack of cash have hurt whatever little productivity the Indian economy may have had. And by forcing digitalization, Modi has merely shifted liquidity from the informal to the formal sector.

Even in the western world, most big corporations are in bed with governments. In India, romping in bed with the State is all they ever do. For the moment, these corporations are huge beneficiaries of shift of resources to the banking system.

But without the spine that is the informal sector, the formal sector cannot benefit for very long. Eventually even the formal economy will succumb and take a massive hit.

Bank credit growth in India plummets to 60 year lows.

Corruption is bigger today, with most people complaining that they have to pay almost twice as much as usual in bribes, as bureaucrats and politicians try to make up for any real or assumed loses they faced as a result of the demonetization process. Counterfeiting of banknotes is a bigger problem today than it likely ever was.

Kashmir – Where India’s Disintegration Is Set to Begin

The last professed reason for Modi’s demonetization decree was to end terrorism and to solve the problems in Kashmir. The situation in Kashmir has deteriorated rapidly, while the law and order situation is generally worsening around the country, as vigilantes are given free reign.

An African student in India being thrashed merely for being African. Racism against Africans is rampant in India, and the hostility is growing.

Sacred cow enforcement squad: Cow vigilantes have become a regular feature of the Indian landscape, with Muslims and lower-caste people being killed and thrashed on a regular basis (one of the five men beaten up in this video later died). The Muslim community is increasingly isolated. This cannot end well in a country with the world’s second biggest Muslim population.

Hindu Yuva Vahini, a group of fanatics, founded by none other than the current Chief Minister of Uttar Pradesh, Yogi Adityanath, roaming freely, with swords drawn (UP is India’s most populous state with nearly 200 million inhabitants). Once the genie of lawlessness is out of the bottle in this irrational society, it will be centuries before it can be put back in again. This is a disaster waiting to happen.

Immediately after his appointment, Yogi Adityanath created “Anti-Romeo” squads, whose job is to harass any couples deemed to be unmarried. In spite of the fact that the police has no such constitutional authority, the courts have been silent spectators. Vigilante Hindu fanatics have even dragged couples from private properties to the police station. Instead of police charging these fanatics, they end up interrogating the couples dragged to the station. As I have said repeatedly, only hollowed out structures remain of the institutions the British left behind.

There has been an unprecedented increase in human rights violations by the Indian army in recent days in Kashmir

Another short video showing the Indian army in action in Kashmir

The Indian army recently used a man as a human shield in Kashmir. Not only celebrities and journalists voiced their approval, India’s Attorney General, one of the main guardians of the law, justified it by saying: “peculiar situations require peculiar measures”.

One must reflect on what it means if the country’s Attorney General has no clue what the rule of the law actually means. Voting was almost non-existent in recent elections. The army is stressed out and desperate. Those not in Kashmir and with no skin in the game happily pass judgment from their couches.

There is no political mechanism in place for Kashmir to secede. Secession through violence – which looks increasingly inevitable, particularly in view of Modi’s heavy-handedness  – will be extremely chaotic. Its reverberations will be heard across the world, and might start the fragmentation of India as a political entity.

The Fortune 500's Fastest Growing (And Shrinking) Companies

Via Craft.co,

Since 1955, Fortune Magazine has released an annual list of the highest revenue generating companies in the US – the Fortune 500. In 2016, the US Fortune 500 companies generated $12 trillion in combined revenue, accounting for over two-thirds of US GDP, and employed 27 million people worldwide.

In today’s dynamic economy, we know some companies and sectors are growing rapidly and others are struggling. We wanted to see which of the Fortune 500 are growing and shrinking the fastest, and which sectors.

In the Craft company database, we looked up revenue for these 500 companies over 2014-16*, and calculated the average annual growth rate in that 3 year period.

We found that only 62%, 309 companies, had positive revenue growth and 38%, saw their revenues decline. Healthcare was the fastest growing sector, perhaps benefiting from the regulatory environment, and Technology came in second, driven by relentless innovation in Silicon Valley. The Energy sector declined the most, matching a steep drop in the global oil price.

Here are the 50 fastest revenue growth companies in the US Fortune 500.

XPO Logistics, providers of transport and logistic services was the fastest growing company, with a compound average growth rate (CAGR) of 230%. This growth was the result of numerous acquisitions in 2015, and 2016 was the company’s first year in the Fortune 500 list, recording $7.6 billion in revenue.

NGL Energy Partners, an energy conglomerate was the second fastest growing company, with 95% CAGR.

Overall, 83 companies grew revenue at an impressive 10% CAGR or higher during this period.

59 of the Fortune 500 saw their revenues decline by 10% or more. Here are the top 10 fastest shrinking revenue companies from the list. 

The company with the largest decline was Hess, oil and natural gas producers, whose revenue declined 58%. The next fastest shrinking company was Marathon Oil, which declined 38%. With the exception of SuperValu, a Minnesota-based food and drug retail chain, 9 of the 10 fastest shrinking revenue companies were in the energy sector.

Looking further into the fastest growing and shrinking sectors, we calculated average revenue growth weighted by the percentage of total revenue generated by each sector. The table below ranks sectors by growth rate, weighted by total revenue.

We also analyzed the list by geography to see if there were any patterns in terms of where growth was taking place across the United States. We grouped companies by State in which they have their HQ, and calculated average revenue growth weighted by the percentage of total revenue in each state.

The table below ranks the states by fastest revenue growth and decline. Note we only included states with 5 or more companies headquartered there.

California was the fastest growing state, with 51 of the companies headquartered there, growing at an average of 5% annually. 20 of these 51 companies are in the Technology sector, and include Facebook, Salesforce, Netflix, Apple and Alphabet.

The second fastest growing state was Washington. The 12 Washington-based companies grew at an average of 2%, with the fastest company being Amazon, which grew at 20%.

Unsurprisingly, given the dominance of Energy companies, Texas was the fastest declining state, with the 50 companies headquartered there, losing a weighted average of 17.5%. That was followed by New York, where 55 companies lost revenue at a weighted average of 3% annually.

The number of technology companies in the Fortune 500 has steadily increased since 1955, and this sector saw the second highest revenue growth during this period.

The following table shows the growth rates of the 47 companies in this sector.

In this sector, 72% of companies had positive revenue growth, Social networking giant Facebook was the fastest growing company in this sector, with 51% annual revenue growth. Micron Technology, providers of semiconductors came second, with 40% revenue growth.

Netflix, an online video streaming platform was a new entrant to the Fortune 500 List in 2016, had the 4th fastest revenue growth in this sector, at 24%.

The fastest shrinking company in this sector was data communications and telecoms provider Motorola Solutions, declining 19%.

There were more companies in the US Fortune 500 with positive growth than negative, and the fastest growing companies grew at a quicker rate than rates of decline in the shrinking companies. Overall, however, the entire group actually had slightly negative growth in the period. In 2014, the combined revenues of the 500 companies were $12.069 trillion. In 2016, that figure stood at $11.995 trillion, a decline of 0.31%. It’s relatively stable at the top, however, it’s clear that at scale it becomes harder and harder to drive growth. And in the flux of the modern economy, there are plenty of companies whose biggest revenue days are behind them.