Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

<ul>
<li>In the first 9 months of FY2021/22, the fiscal deficit was 50% of the budgeted estimate for the full-year. More realistically, this year's fiscal deficit will be 5.7% of GDP. </li>
<li>Given more credible revenue estimates, the deficit for FY2022/23 will decline to 4.9%  of GDP. The government's lower borrowing requirement will help crowd-in private investment. </li>
<li>A 35%YoY increase in public investment will fund a multimodal connectivity rollout, while carbon-fibre will reach all villages, solar and 5G will be harnessed to create a tech virtuous circle. </li>
</ul>


In the first 9 months of FY2021/22, the fiscal deficit was 50% of the budgeted estimate for the full-year. More realistically, this year's fiscal deficit will be 5.7% of GDP. 
Given more credible revenue estimates, the deficit for FY2022/23 will decline to 4.9%  of GDP. The government's lower borrowing requirement will help crowd-in private investment. 
A 35%YoY increase in public investment will fund a multimodal connectivity rollout, while carbon-fibre will reach all villages, solar and 5G will be harnessed to create a tech virtuous circle. 


India: Budget Aims to Generate Concentric Virtuous Circles & Crowd-In Private Capex

India's exports grew 86% YoY in Apr-Jun 2021, and were 18.3% higher than in Apr-Jun 2019 (the pre-Covid times). The return to pre-Covid levels was clearest in June (+48.3% YoY, and 30% up from June 2019) and July (+47.9% YoY, and 34% above July 2019). The height of the second Covid wave did hurt industrial growth in May 2021 (up 29.3% YoY, but down 12.6% from May 2019), although industrial output surpassed 2019 levels in April; for April-May 2021, manufacturing output grew 88.8% YoY. And in 1H 2021, India's steel output (+31.3% YoY) was the fastest-growing among the world's top-10 steel producers. A real recovery is set to gather momentum in 2H 2021. The clearest evidence of a powerful economic rebound comes from the revival in net tax revenues, which were up 97% YoY in 1Q-FY2021/22, and were 26.7% of the full-year target in 1Q of this fiscal year, compared with reaching just 14.4% of the full year target in Apr-Jun 2019. However, while total government spending in Apr-Jun 2021 was 23.6% of the full-year target, it was 25.9% of full-year target in Apr-Jun 2019 -- the consequence being that the fiscal deficit in Apr-Jun 2021 was just 18.2% of the full-year target, while in Apr-Jun 2019 it had been a whopping 61.4% of the target. Fiscal prudence is helped by a surge in corporate tax revenue (+128% YoY, but also 75% higher than in Apr-Jun 2019) and soaring union excise duties (mainly on petrol and diesel, which are encouraging a shift to renewables across the energy spectrum). Remarkable fiscal prudence should ensure that deficits this year will be below target. With exports, industrial output and tax revenue soaring, the economy is set to accelerate, and comfortably achieved 11% real GDP growth this year, especially as the accelerated vaccination drive helps contain any third Covid wave.  That corporate tax revenues in Apr-Jun 2021 were 75% higher than in Apr-Jun 2019 suggests a powerful acceleration in corporate profitability. That pace of corporate profit acceleration will ensure that valuations will remain reasonable despite the steadily rising equity prices. We would recommend staying Overweight India.

India's exports grew 86% YoY in Apr-Jun 2021, and were 18.3% higher than in Apr-Jun 2019 (the pre-Covid times). The return to pre-Covid levels was clearest in June (+48.3% YoY, and 30% up from June 2019) and July (+47.9% YoY, and 34% above July 2019). The height of the second Covid wave did hurt industrial growth in May 2021 (up 29.3% YoY, but down 12.6% from May 2019), although industrial output surpassed 2019 levels in April; for April-May 2021, manufacturing output grew 88.8% YoY. And in 1H 2021, India's steel output (+31.3% YoY) was the fastest-growing among the world's top-10 steel producers. A real recovery is set to gather momentum in 2H 2021. The clearest evidence of a powerful economic rebound comes from the revival in net tax revenues, which were up 97% YoY in 1Q-FY2021/22, and were 26.7% of the full-year target in 1Q of this fiscal year, compared with reaching just 14.4% of the full year target in Apr-Jun 2019. However, while total government spending in Apr-Jun 2021 was 23.6% of the full-year target, it was 25.9% of full-year target in Apr-Jun 2019 -- the consequence being that the fiscal deficit in Apr-Jun 2021 was just 18.2% of the full-year target, while in Apr-Jun 2019 it had been a whopping 61.4% of the target. Fiscal prudence is helped by a surge in corporate tax revenue (+128% YoY, but also 75% higher than in Apr-Jun 2019) and soaring union excise duties (mainly on petrol and diesel, which are encouraging a shift to renewables across the energy spectrum). Remarkable fiscal prudence should ensure that deficits this year will be below target. With exports, industrial output and tax revenue soaring, the economy is set to accelerate, and comfortably achieved 11% real GDP growth this year, especially as the accelerated vaccination drive helps contain any third Covid wave.  That corporate tax revenues in Apr-Jun 2021 were 75% higher than in Apr-Jun 2019 suggests a powerful acceleration in corporate profitability. That pace of corporate profit acceleration will ensure that valuations will remain reasonable despite the steadily rising equity prices. We would recommend staying Overweight India.   

India: Exports Lead Industrial Rebound, While Fiscal Policy Remains Prudent

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Thematic (Sector/Industry)

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

Reserve Bank Of India – FSR Is Very Unrealistic

Economist, Centennial Asia Advisors

Nicholas Chia

Economist

Centennial Asia Advisors

At Centennial Asia Advisors, we tell it like it is. We have no vested interests, no need for a China wall, and no reason to skew our outlook any other way. With over 30 years experience covering Asia’s political economy, you can be sure our conclusions and analyses are based on the unadulterated facts. Through years of fine-tuning our research methodologies, we deliver a quality of macroeconomic analysis few other houses can match.

Centennial Asia Advisors is an independent research and advisory firm that works with governments, multilateral institutions, financial firms and leading MNCs.

Economic Policy and Strategic Advisors

FX & Rates

<ul style="list-style-type: square;">
<li>The pandemic is easing, raising hopes for the recovery to regain momentum as lockdowns come off. The government is willing to countenance more stimulus, but the measures are likely to be more targeted at sectors hit hard by the lockdowns. Furthermore, there is very limited fiscal headroom for sweeping fiscal relief so more indirect measures will feature in the new relief bill, if it even materialises in the first place.</li>
<li>The government intends to dip into the capital markets for another INR1.6tr in additional borrowing, on top of the INR12tr it is budgeting to finance the budget deficit. This will seriously test the bond market's ability to take in such a deluge of borrowings in the near-term.</li>
<li>The RBI could expand and extend its G-SAP (i.e. QE) policy moving into 3Q21. But yields will come under pressure from the widening yield differentials with the US as well as the incoming deluge of borrowings. In turn, the <a href="https://www.smartkarma.com/entities/inr" target="_blank" data-smartkarma-citation="entities:22832:1" rel="noopener">INR (USDINR CURNCY)</a>'s rally is likely to hit a wall in the near-term after clawing back most of the losses it sustained in May - it is the best performing currency this month after rising 2.2% from April.</li>
</ul>


The pandemic is easing, raising hopes for the recovery to regain momentum as lockdowns come off. The government is willing to countenance more stimulus, but the measures are likely to be more targeted at sectors hit hard by the lockdowns. Furthermore, there is very limited fiscal headroom for sweeping fiscal relief so more indirect measures will feature in the new relief bill, if it even materialises in the first place.
The government intends to dip into the capital markets for another INR1.6tr in additional borrowing, on top of the INR12tr it is budgeting to finance the budget deficit. This will seriously test the bond market's ability to take in such a deluge of borrowings in the near-term.
The RBI could expand and extend its G-SAP (i.e. QE) policy moving into 3Q21. But yields will come under pressure from the widening yield differentials with the US as well as the incoming deluge of borrowings. In turn, the INR (USDINR CURNCY)'s rally is likely to hit a wall in the near-term after clawing back most of the losses it sustained in May - it is the best performing currency this month after rising 2.2% from April.


India: Limited Upside To Rally In Rupee Moving Forward

With manufacturing output growing 5.8% YoY in Jan-Mar 2021 (4Q-FY2020/21), we estimate that real GDP grew 4.5% YoY that quarter -- far above the consensus of +1.2% YoY -- thus ensuring a contraction of -6% for FY2020/21 (much better than the official estimate of -8%). April 2021 saw a spectacular year-on-year rebound in the economy, with exports up 196% YoY, imports up 167% and steel output up 153% YoY that month. Much of the economy was locked down in May, as the Covid 2nd Wave hammered India -- with new daily cases peaking at 414,434 on 6 May 2021, but receding to 173,882 new cases on 28 May 2021.
After the May pause, however, the economy should accelerate through the rest of FY2021/22, benefitting from last year's structural economic reforms -- particularly the liberalization of the labour market, cuts in corporate tax rates, and the introduction of production-linked incentives to boost manufacturing. This year's partial lockdowns largely exempted exports, and allowed public transportation to continue, thereby reducing the supply bottlenecks that plagued the economy in 2020. Consequently, CPI inflation will likely remain in the RBI's inflation-target range, and moderate to 4% YoY by August. Despite high oil-driven WPI inflation, we expect the RBI to cut its policy rate by 25bp each in the next two quarters, further spurring the economic recovery. 
India's vaccination drive too ran into supply bottlenecks in May, which are now easing -- with more than 3 million vaccine doses being administered daily in recent days. A total of 209 million vaccine doses have been administered, but the pace of vaccination is likely to accelerate over the next 2 months as more vaccine manufacturers are licensed and the US allows large-scale imports of vaccine ingredients to enable the ramp-up of vaccine production. India is not immune to a third wave, but will be better-prepared for one were it to occur. Manufacturing, agriculture and non-travel-intensive services are still likely to ensure 11% real GDP growth in FY2021/22 relative to the depressed levels of last year. April and June will make up partly for the losses of May, but the pace is likely to accelerate in the next two quarters. The strong economic recovery will make valuations look reasonable as earnings too rebound strongly. We would recommend staying invested in India.

With manufacturing output growing 5.8% YoY in Jan-Mar 2021 (4Q-FY2020/21), we estimate that real GDP grew 4.5% YoY that quarter -- far above the consensus of +1.2% YoY -- thus ensuring a contraction of -6% for FY2020/21 (much better than the official estimate of -8%). April 2021 saw a spectacular year-on-year rebound in the economy, with exports up 196% YoY, imports up 167% and steel output up 153% YoY that month. Much of the economy was locked down in May, as the Covid 2nd Wave hammered India -- with new daily cases peaking at 414,434 on 6 May 2021, but receding to 173,882 new cases on 28 May 2021.
After the May pause, however, the economy should accelerate through the rest of FY2021/22, benefitting from last year's structural economic reforms -- particularly the liberalization of the labour market, cuts in corporate tax rates, and the introduction of production-linked incentives to boost manufacturing. This year's partial lockdowns largely exempted exports, and allowed public transportation to continue, thereby reducing the supply bottlenecks that plagued the economy in 2020. Consequently, CPI inflation will likely remain in the RBI's inflation-target range, and moderate to 4% YoY by August. Despite high oil-driven WPI inflation, we expect the RBI to cut its policy rate by 25bp each in the next two quarters, further spurring the economic recovery. 
India's vaccination drive too ran into supply bottlenecks in May, which are now easing -- with more than 3 million vaccine doses being administered daily in recent days. A total of 209 million vaccine doses have been administered, but the pace of vaccination is likely to accelerate over the next 2 months as more vaccine manufacturers are licensed and the US allows large-scale imports of vaccine ingredients to enable the ramp-up of vaccine production. India is not immune to a third wave, but will be better-prepared for one were it to occur. Manufacturing, agriculture and non-travel-intensive services are still likely to ensure 11% real GDP growth in FY2021/22 relative to the depressed levels of last year. April and June will make up partly for the losses of May, but the pace is likely to accelerate in the next two quarters. The strong economic recovery will make valuations look reasonable as earnings too rebound strongly. We would recommend staying invested in India.  

Receding 2nd Wave Will Allow Economic Acceleration, Spurred by Rate Cuts to Come

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India: Budget Aims to Generate Concentric Virtuous Circles & Crowd-In Private Capex

Revenue receipts in Apr-Dec21 reached 96% of the FY2021/22 target, while spending was merely in line. With deficits declining this year & next,...

Prasenjit K. Basu

India: Exports Lead Industrial Rebound, While Fiscal Policy Remains Prudent

Jan-Jul21 exports up 47% YoY, with Jun-Jul 32% higher than 2019. Corp tax revenue is up 128%YoY & 75% above 2019, so fiscal deficit in Apr-Jun21...

Prasenjit K. Basu

Reserve Bank Of India – FSR Is Very Unrealistic

RESERVE BANK OF INDIA: According to the RBI, NPLS are not anticipated to be as bad. This couldn't be further from the truth. NPLs continue to...

Thomas J. Monaco

India: Limited Upside To Rally In Rupee Moving Forward

The RBI is expected to extend and expand the G-SAP in the upcoming MPC meet, but its ability to keep yields under control will be seriously tested...

Nicholas Chia

Receding 2nd Wave Will Allow Economic Acceleration, Spurred by Rate Cuts to Come

Strong harvest to curb food inflation, allowing 50bp rate but by Oct21. The soaring March-April economy will re-accelerate with vaccine rollout...

Prasenjit K. Basu

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