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>India's goods exports grew 41.4% in 2021, outpacing most of the world (including Taiwan, Korea and China). Services exports stayed robust too, and both will boost growth in 2022. </li>
<li>Fixed investment spending was up 11% YoY in Q2-FY2021/22, and will likely strengthen further on the back of accelerating corporate profits (evident in surging corporate tax revenue). </li>
<li>Despite renewed disruptions from India's Third Wave of Covid, we expect real GDP to grow over 10% in FY2021/22 and 8%+ in FY2022/23, boosted by robust exports.  </li>
</ul>


India's goods exports grew 41.4% in 2021, outpacing most of the world (including Taiwan, Korea and China). Services exports stayed robust too, and both will boost growth in 2022. 
Fixed investment spending was up 11% YoY in Q2-FY2021/22, and will likely strengthen further on the back of accelerating corporate profits (evident in surging corporate tax revenue). 
Despite renewed disruptions from India's Third Wave of Covid, we expect real GDP to grow over 10% in FY2021/22 and 8%+ in FY2022/23, boosted by robust exports.  


India's Trade-Led Acceleration in GDP Unlikely to Lose Momentum in 2022

Led by a powerful rebound in exports (+38.1% YoY in Jul-Sep 2021, and 43.4% YoY in Jan-Sep 2021) and stronger investment spending evident in capital goods output (+19.1% YoY in August, +60.1% YoY in Apr-Aug 2021) and machinery imports (+53.1% YoY in Apr-Sep 2021), we continue to expect at least 10.5% real GDP growth in FY2021/22 (well above the IMF's forecast of 9.5%). Private consumption has been relatively sluggish, but shows signs of a pickup since September. After likely growth of 15% YoY in 1H-FY2021/22, real GDP will comfortably exceed 6% YoY growth in the second half of the fiscal year. 
The external balances remain particularly robust, with a current account surplus of 1.25% of GDP in FY2020/21 followed by a surplus of 0.9% of GDP in 1Q-FY2021/22 (Apr-Jun 2021) despite a sharply wider merchandise-trade deficit. With robust capital inflows, India's foreign reserves have risen 16% YoY to US$639.5 billion as of 8 October 2021. The fiscal deficit will likely be much smaller than the officially-projected figure, as revenues have soared while expenditure has been restrained: in the first 5 months of FY2021/22 (Apr-Aug 2021), the fiscal deficit was just 31.1% of the projected estimate for the full fiscal year -- particularly helped by the 70.5% YoY rise in net tax revenues, led by corporate tax revenue rising 160% YoY and customs duties 136% YoY. Given the robust external liquidity position, and a sharp improvement in the fiscal balance, we expect the global rating agencies to be obliged to raise India's sovereign rating by a notch over the next year. 
The strong fiscal position allows the possibility of reductions in excise duties on petroleum products to keep those prices in check as global crude-oil prices rise. CPI inflation (the RBI's inflation target) has already moderated to 4.35% YoY in September, and will likely moderate to 4% by November as the near-normal monsoon results in a bountiful kharif harvest. We expect CPI inflation to remain below 5% YoY in Jan-Mar 2022 too (despite the low base, which leads the RBI to forecast 5.8% inflation during that quarter). With inflation surprising to the downside, we think the RBI will have room for a cut in the policy rate (or other easing measures such as reductions in CRR) after the next Budget is presented. Despite challenging valuations (which will improve as the economy strengthens further and EPS growth stays robust), we recommend staying Overweight India.

Led by a powerful rebound in exports (+38.1% YoY in Jul-Sep 2021, and 43.4% YoY in Jan-Sep 2021) and stronger investment spending evident in capital goods output (+19.1% YoY in August, +60.1% YoY in Apr-Aug 2021) and machinery imports (+53.1% YoY in Apr-Sep 2021), we continue to expect at least 10.5% real GDP growth in FY2021/22 (well above the IMF's forecast of 9.5%). Private consumption has been relatively sluggish, but shows signs of a pickup since September. After likely growth of 15% YoY in 1H-FY2021/22, real GDP will comfortably exceed 6% YoY growth in the second half of the fiscal year. 
The external balances remain particularly robust, with a current account surplus of 1.25% of GDP in FY2020/21 followed by a surplus of 0.9% of GDP in 1Q-FY2021/22 (Apr-Jun 2021) despite a sharply wider merchandise-trade deficit. With robust capital inflows, India's foreign reserves have risen 16% YoY to US$639.5 billion as of 8 October 2021. The fiscal deficit will likely be much smaller than the officially-projected figure, as revenues have soared while expenditure has been restrained: in the first 5 months of FY2021/22 (Apr-Aug 2021), the fiscal deficit was just 31.1% of the projected estimate for the full fiscal year -- particularly helped by the 70.5% YoY rise in net tax revenues, led by corporate tax revenue rising 160% YoY and customs duties 136% YoY. Given the robust external liquidity position, and a sharp improvement in the fiscal balance, we expect the global rating agencies to be obliged to raise India's sovereign rating by a notch over the next year. 
The strong fiscal position allows the possibility of reductions in excise duties on petroleum products to keep those prices in check as global crude-oil prices rise. CPI inflation (the RBI's inflation target) has already moderated to 4.35% YoY in September, and will likely moderate to 4% by November as the near-normal monsoon results in a bountiful kharif harvest. We expect CPI inflation to remain below 5% YoY in Jan-Mar 2022 too (despite the low base, which leads the RBI to forecast 5.8% inflation during that quarter). With inflation surprising to the downside, we think the RBI will have room for a cut in the policy rate (or other easing measures such as reductions in CRR) after the next Budget is presented. Despite challenging valuations (which will improve as the economy strengthens further and EPS growth stays robust), we recommend staying Overweight India.  

India: Capex- & Export-Led Rebound Likely to Receive Fiscal and Monetary Fillip Too

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

India posted a current account surplus (0.9% of GDP) in FY2020/21, the first annual surplus since FY2003/04 (the last year of the first BJP-led NDA government). That, coupled with net FDI of US$44 billion and net FPI of US$36 billion, ensured an overall balance of payments surplus of US$87.3 billion in the pandemic year, FY2020/21. The strength of the external balance allows India to boost aggregate demand more aggressively in FY2021/22. Merchandise exports expanded 114% YoY in April-May 2021 (the first 2 months of FY2021/22), with the 69% YoY growth in May suggesting that exports rode out the severity of the Second Covid Wave relatively unscathed. Imports expanded 109% YoY in April-May 2021, reflecting a powerful rebound in domestic demand (albeit one that was restrained by partial lockdowns in May). The rebound in industrial production (+134% YoY) and manufacturing (+197% YoY) in April 2021 was spectacular. Although May will likely see a deceleration, India's steel output grew 47% YoY in May, setting the pace among the world's top steel producers with 33.6% YoY growth in Jan-May 2021. We retain our forecast of 11% real GDP growth in FY2021/22, and 8% in FY2022/23. The virulent Second Wave of Covid has receded, with the 7-day moving average of new Covid cases falling below 50,000 in the past week (from a peak above 392,000 on 8 May). Vaccinations have accelerated sharply since the federal government took charge on 21 June (and funded free vaccines for all adults), but only 33% of all adults (270 million individuals) have received at least one vaccine dose, of whom 57 million (7% of all adults) have been fully vaccinated. This is far from achieving herd immunity, but widespread vaccinations ensure that any third wave will have a much less negative impact on the economy. Despite stretched valuations, we are bullish on India equities, as the strong economic recovery will boost earnings, alleviating the overvaluation.

India posted a current account surplus (0.9% of GDP) in FY2020/21, the first annual surplus since FY2003/04 (the last year of the first BJP-led NDA government). That, coupled with net FDI of US$44 billion and net FPI of US$36 billion, ensured an overall balance of payments surplus of US$87.3 billion in the pandemic year, FY2020/21. The strength of the external balance allows India to boost aggregate demand more aggressively in FY2021/22. Merchandise exports expanded 114% YoY in April-May 2021 (the first 2 months of FY2021/22), with the 69% YoY growth in May suggesting that exports rode out the severity of the Second Covid Wave relatively unscathed. Imports expanded 109% YoY in April-May 2021, reflecting a powerful rebound in domestic demand (albeit one that was restrained by partial lockdowns in May). The rebound in industrial production (+134% YoY) and manufacturing (+197% YoY) in April 2021 was spectacular. Although May will likely see a deceleration, India's steel output grew 47% YoY in May, setting the pace among the world's top steel producers with 33.6% YoY growth in Jan-May 2021. We retain our forecast of 11% real GDP growth in FY2021/22, and 8% in FY2022/23. The virulent Second Wave of Covid has receded, with the 7-day moving average of new Covid cases falling below 50,000 in the past week (from a peak above 392,000 on 8 May). Vaccinations have accelerated sharply since the federal government took charge on 21 June (and funded free vaccines for all adults), but only 33% of all adults (270 million individuals) have received at least one vaccine dose, of whom 57 million (7% of all adults) have been fully vaccinated. This is far from achieving herd immunity, but widespread vaccinations ensure that any third wave will have a much less negative impact on the economy. Despite stretched valuations, we are bullish on India equities, as the strong economic recovery will boost earnings, alleviating the overvaluation.  

Export-Led Recovery to Broaden as 2nd Covid Wave Recedes

India

iShares MSCI India Index ETF is an exchange-traded fund registered in Singapore. The Fund seeks to provide investment results that, before expenses, closely correspond to the performance of the MSCI India Index. The Fund invests all or substantially all of its assets in shares comprising the MSCI India Index in substantially the same weightings as constituted in the underlying index.

iShares MSCI India Index ETF (INDIA SP)

India's Trade-Led Acceleration in GDP Unlikely to Lose Momentum in 2022

Goods export growth of 41%YoY in 2021 was the fastest in Asia. Robust goods & services exports plus accelerating investment will ensure 10%+ RGDP...

Prasenjit K. Basu

India: Capex- & Export-Led Rebound Likely to Receive Fiscal and Monetary Fillip Too

After likely real GDP growth of 15%YoY in Apr-Sep21, the fiscal coffers are full; this will allow oil excise duty cuts. With inflation below 5%,...

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

Export-Led Recovery to Broaden as 2nd Covid Wave Recedes

FY2021/22 CA surplus creates space for faster growth this year. Exports up 114%YoY in Apr-May, imports +109%, & world-leading steel growth are...

Prasenjit K. Basu