At the beginning of 2016, there ought not be relief for the India-watcher, and we have a lengthy selection of pieces here. There is no clear indication on India’s recovery, though the global watchers seem to express cautious optimism in all of its variants, maintaining their growth projections of over 7.5% for 2016. Downside pressures of a lack of ‘big-bang’ reform, agricultural strife, trade deficits, and a rupee under siege are balanced by the relentless innovation and dedication to success by players both small and large. While one might be led to conclude that a decline in consumer confidence bodes ill for the fast-moving consumer goods (FMCG) segment, Pepsi went and rolled out a budget snack, with aplomb. Read on and you may begin to see why.

Conditions and Indications

The World Bank has cut its emerging market growth outlook, but expects India to grow at 7.8%, a marked increase from the 7.3% experienced in 2015. (Reuters)

The central bank intervened to stop a two-week fall in the rupee’s valuation. (Reuters)

Falling oil prices continue to affect India positively and negatively. While there has been an export decline, raw materials now cost less in key areas. Modi’s ambitious export target won’t be met, but neither will India suffer a propitious decline. (Quartz)

Market turmoil in China will widen the trade deficit, and Indian companies like JSW in the steel sector are scrapping to prevent cheap imports from stealing away profits. (Reuters)

"A stronger rise in new business and an improvement in year-ahead expectations at service providers are positive developments, but the overall health of the economy remains fragile amid a weak manufacturing sector," said Pollyanna De Lima, commenting on a 10-month high in services PMI, which measures services activity, in December. Employment was stagnant, and manufacturing PMI showed a contraction in that sector in December for the first time in over two years as demand shrunk. There can be no truly bullish read on the recovery based on this. (Reuters)

Rising inflation has led to a drop in consumer sentiment, as measured by the MNI India Consumer Sentiment Indicator, to the lowest on record. This is driven by household finance expectations and stagnation in the employment picture. (Economic Times)

At year-end, Madhura Karnik at Quartz put together a fantastic series, concise and data-driven, on different sides of the political economic scene.

The data on savings shows that in 2015 there became a much greater interest in financial instruments as a savings destination as compared with physical assets like real estate and gold. This shouldn’t be taken as a comprehensive repudiation of either traditional investment destination, but moneymaking is no longer a good bet in the short term with either asset.

Simply looking at the data through 2015, banks are seeing a steady rise in income, with mild stagnation in profits and returns on assets and equity. The non-performing asset segment continues to rise. Retail may want to take a close look at the data on debit and credit card ownership: numbers are going up, and in the case of debit cards, significantly. But only a little over 20 million Indians have credit cards, which is more immediately telling for the likes of e-tailers. (Quartz)

Inflation edged up at the end of the year, with uncertain implications for consumer sentiment via inflation and household income expectations. But the central bank extended the term of Urjit Patel, the lieutenant to bank governor Raghuram Rajan who formally introduced an inflation targeting policy focusing on the CPI rather than WPI basket in 2014. (Reuters)

Business and Industry

“Is there a [startup] valuation bubble?” - Quartz
“I think it is the wrong question. At various points in time, there will be good companies, which will raise capital and at different valuations. Because valuation is not a function of how a company is performing, it is a function of availability of capital, and a function of how many investors are interested, among others. So the valuations keep on changing. Take any public market company, over a time of three-four years, the prices go up and down, every day. But in the public markets, nobody asks these questions. The right question to ask is: Are there good number of ideas available which can scale? And is capital readily available for these ideas?” – VT Bharadwaj, MD Sequoia Capital, which invested in 33 startups in 2015

India is young, everybody is coming online and mobile is their primary device. The country is changing. And the next wave of users are going to come from a country like India,” [the India country head of Tinder, the dating app] said. “You have to be here. Online dating and mobile-first social networks are exploding. Look at Instagram, WhatsApp, and Snapchat, and the way they are evolving in India. Look at the way 21-year-olds are using it. They are the next set of users.” (Quartz)

“[I]t [seems] to me that there [is] a whole new world out there, which [is] a digital world driven by a marketplace. Basically, which [has] a huge potential driven by handheld devices, which [could] one day become the virtual retail store of India.” – Ratan Tata, Chairman Emeritus, Tata and Sons (Quartz)

The Hindu BusinessLine: January 11
Made-in-Navi-Mumbai phones will debut in April, silencing for now doubters of the Taiwanese company’s commitment to India. If this goes well, the pathway to a made-in-India iPhone will be, if only slightly, slightly closer.

YourStory: January 9
Manjunath Padigar
A prominent marketer surveys the retail landscape, both digital and physical. People really are becoming enamoured of the online and mobile shopping experience, but it will take a (particularly long) while for tastes and habits to change definitively even if they move firmly in one direction, and there is a great opportunity for physical retailers to take lessons from what the online shoppers like and double down to (re)capture market share.

Economic Times: January 9
Ratna Bhushan
In a demonstration of supreme confidence, Pepsi is set to introduce a set of snacks to compete with regional snacks that hit the lowest-bracket market, which is dominated by both organized and unorganized vendors capitalizing on local flavors and a favorable cost structure. This follows Pepsi’s try last year at premium snacks, which has yet to deliver a verdict.

Quartz: December 23
Madhura Karnik
Although the country is well aware of the toll taken by diabetes and heart disease by way of sugar consumption, carbonated drink consumption increased 9% the past year and is projected to increase by about that much in the coming year. Expanding household incomes, at least for many, as well as the marketing environment that projects fast food consumption as a higher-status activity, are clearly beating out health-oriented regulation. The fast food segment, including beverages, is in the green for the foreseeable future.

Quartz: January 7
Manu Balachandran
With awe-inspiring ingenuity, Devi Prasad Shetty has capitalized on the need for heart surgeries with the increasingly sedentary and suger-filled lifestyles of the middle class, for the benefit of the people and with promise for potential investors in the healthcare space. Under his direction, it became possible to treat surgeries with precision and near-automation, doctors moving from one procedure to the next like an assembly line, and acquiring supplies in bulk and for the lowest possible price without sacrificing quality. Through diligence and dedication above anything else, Shetty has built a healthcare unicorn.

Reuters: January 5
The investment builds on the demand and revenue boom for hotel rooms in 2015, and bets on a high overall recovery floor.
E-Commerce as it matures
The e-commerce story is never in the rearview. The threats to marketplaces like Amazon, Flipkart, and Snapdeal take the form of bureaucratic intervention and backlash to the severe discounting and to counterfeiting that routinely occurs, an analog of what one might find at a roadside vendor stand in India. Though the government, through the venerable Department of Industrial Policy and Promotion (DIPP), is coming up with an FDI policy, it remains vague on the question of an e-commerce marketplace, meaning it either has not figured out what to do or is being deliberately convoluted by the powers that are greater. And major international brands like Hilfiger, Levi’s, and Ray-Ban are not afraid to be litigious to wipe out fakes littering e-tail outlets large and small. (Economic Times)

Politics: Reform and Regulation

Reuters: January 7
Rajesh Kumar Singh and Manoj Kumar
Buzz had been building about a surprise consensus on the long-awaited Goods and Services Tax bill, which would simplify the largely redundant tax system between federal and state levies, in the best possible outcome creating the semblance of a common market. The parties are agreed in principle on the need for such a reform, and Congress introduced the reform originally in 2013, but Congress has pushed for a smaller tax rate and an independent revenue-sharing mechanism against the wishes of the majority BJP. Finance MInister Arun Jaitley had set a target for an April 1, 2016 rollout, but the GST bill has stalled in the last two sessions of parliament without even making it to the floor.

Reuters: January 8
A troublesome exercise of a government inquiry panel on health warnings for cigarette packets is underway, with the panel as sympathetic as possible to the tobacco industry. The panel, denying that one can decisively claim that tobacco causes cancer, is at odds with the Health Ministry. The battle rages on.

Reuters: January 8
In one election year among many, the central government will take measures to relieve a reeling rural population. Two successive poor monsoons have left visible scars in the society, to say nothing of the effect on aggregate demand that investors must bet on. The BJP’s loss in the state assembly elections in Bihar last fall may have contributed to the measure finally being taken.
  • The government’s think tank, the NITI Aayog, has identified the structural problems with rural supply chains and the lack of electrification, so ideas on sustainable reform have a chance of progressing if politics will allow the central government to go beyond employment guarantees and the like. (Livemint, Editorial)

Reuters: January 8
Krishna N. Das
In a major breakthrough, the central government has settled on a plan to be rolled out in about 3 months to auction its coal mines, though it is unclear how quickly this will produce the energy boon it promises, and whether multinational conglomerates will be interested. It should spell hope for states which have been undercapitalized given their coal endowment. Coal India has been extremely successful in the past few months, and imports have significantly fallen.

Appendix: Investing In The States

It’s no secret that certain states are better for business and capital than others, either because of their fundamental characteristics such as geographic location, or because of the competency of their leadership or relationship with the central government. Recently, quite a few major states have put on shows to try to ra-ra investment to their states. Here, we take a quick look.

Recall: Tamil Nadu

Industrial powerhouse Tamil Nadu held its first investment summit in September 2015, drawing a crowd of the biggest corporate conglomerate players and in a measure of nothing more than sentiment, garnered about $15 billion in intended investment, mostly in manufacturing and energy, where Tamil Nadu has a comparative advantage. (Financial Express)

West Bengal

Only a few years out of leftist rule, West Bengal is attempting to position itself as the next prime investment destination, an anchor of Modi’s “Act East” strategy to connect to Southeast Asia via its northeast. Chief Minister Mamata Banerjee pointed to a number of indicators above the Indian average, including gross value-added (GVA) and agriculture, forestry, and fisheries. The federal shipping minister, Nitin Gadkari, contributed a large investment in the ports sector. This was not an instant boon-producer in the way of infrastructure and manufacturing projects, no doubt due to the major red flags concerning land acquisition, but executives decorated the occasion with pretty words and the event is likely to whet the appetite of executives and investors who had still looked askance at West Bengal under Banerjee’s Trinamool Congress. (Business Standard, Firstpost, India Today)

Andhra Pradesh

Led by favorable growth numbers, well-reputed industry clusters, and the stellar record of Chief Minister N. Chandrababu Naidu, a Modi-esque event branded “Sunrise Andhra” brought in almost $75 billion in promised investment. During the proceedings, an expanded plan for a Visakhapatnam-Chennai Industrial Corridor, to eventually be part of a pathway connecting West Bengal to Tamil Nadu (compare to the Delhi-Mumbai Industrial Corridor), now funded by the Asian Development Bank, was introduced. Naidu also spoke of an upgrade to the port systems, and touched on promising themes of clearance simplification and increased internet connectivity. Naidu has for a few months been touting the development of a brand-new capital city, Amaravati, in development by a Singaporean firm. Naidu seemed intent on helping large retailers to succeed in his state, promising policy clarity and localization assistance to the likes of Wal-Mart, which has had an up-and-down history in various parts of India. Bifurcated to create Telangana only a year and a half ago, Naidu is determined use this apparent hindrance to his advantage and secure investment momentum that will prevent any dips in enthusiasm. (The Hindu)

Look Ahead: Dakshina Kannada

With Karnataka set to hold its own investment summit next month, an economic hub in Mangalore is expected to receive inflows of up to $1.8 billion spread across manufacturing, natural resource production, retail, and banking. Here, many see the promise but are waiting for the local and state governments to make policy moves that will create a reasonable risk environment. (Times of India)