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

We recommend staying underweight India until the 7-day moving average of Covid cases turns down (likely no sooner than mid-May). There would then be an excellent buying opportunity: we have lowered our forecast of real GDP growth in FY2020/21 to 12% (from 13.5%), but the vaccine roll-out (with 60% of all those above 45 likely to have been vaccinated by the end of this month) should wrestle the new Covid case numbers down from peaks by end-May. A current account surplus, liquid banks, and a reformed, privatization-driven policy framework should ensure that the rebound is delayed but not halted by this virulent Second Covid wave.  When the IMF was forecasting 8.8% real GDP growth for FY2021/22 and the consensus was 8-9%, we raised our forecast to 12.5% in December 2020 -- and to 13.5% at the beginning of February 2021 (post the reform-oriented Budget). Now that the IMF has caught up with our end-2020 forecast, we are lowering ours to 12%, acknowledging the huge uncertainties induced by this 2nd Covid wave. Given the low base in April-May 2020, YoY growth rates for production will barely budge, but private consumption will likely weaken during these months as retailers in key hotspots (including Delhi, Mumbai, Bengaluru) will stay shut during 2-week curfews/lockdowns. The current account surplus of 1.5% of GDP in 2021, and loan-deposit ratio of 72%, imply there is ample external and domestic liquidity to spur a strong economic recovery once lockdowns are lifted. At 145 million vaccinations, 17.7% of the adult population (18 &amp; over) or 57% of all those eligible (45 &amp; over) have had at least one vaccine dose. This is far from achieving herd immunity, but faster vaccinations from June should allow over a billion people to be vaccinated by end-2021. Lockdowns and curfews are proving effective in Maharashtra and Delhi (the worst hotspots), but will now roll through several other states. But the base effects will help the YoY growth rates in April-May. In March 2020 there was only a week's disruption, but exports were up 60% YoY (imports 53% YoY) in March 2021, steel output up a world-leading 23.9% YoY and car production up 79% YoY in March 2021. April and May 2020 were almost wiped out economically, so the YoY growth rates will still be spectacular in Apr-May 2021, given the strong underlying momentum.The disruptions to consumption (especially) and production should be made up in the next few months. The low corporate tax rate, reformed labour market and production-linked incentives should induce a powerful surge in investment, with privatization and asset-monetization providing an extra fillip as they are implemented during the course of the year. We do not expect the liquid banking system (L-D ratio 72%) to contribute to the rebound until early-2022, with early-recapitalization of state-owned banks helping a bit, but privatizations providing a bigger spur.

We recommend staying underweight India until the 7-day moving average of Covid cases turns down (likely no sooner than mid-May). There would then be an excellent buying opportunity: we have lowered our forecast of real GDP growth in FY2020/21 to 12% (from 13.5%), but the vaccine roll-out (with 60% of all those above 45 likely to have been vaccinated by the end of this month) should wrestle the new Covid case numbers down from peaks by end-May. A current account surplus, liquid banks, and a reformed, privatization-driven policy framework should ensure that the rebound is delayed but not halted by this virulent Second Covid wave.  When the IMF was forecasting 8.8% real GDP growth for FY2021/22 and the consensus was 8-9%, we raised our forecast to 12.5% in December 2020 -- and to 13.5% at the beginning of February 2021 (post the reform-oriented Budget). Now that the IMF has caught up with our end-2020 forecast, we are lowering ours to 12%, acknowledging the huge uncertainties induced by this 2nd Covid wave. Given the low base in April-May 2020, YoY growth rates for production will barely budge, but private consumption will likely weaken during these months as retailers in key hotspots (including Delhi, Mumbai, Bengaluru) will stay shut during 2-week curfews/lockdowns. The current account surplus of 1.5% of GDP in 2021, and loan-deposit ratio of 72%, imply there is ample external and domestic liquidity to spur a strong economic recovery once lockdowns are lifted. At 145 million vaccinations, 17.7% of the adult population (18 &amp; over) or 57% of all those eligible (45 &amp; over) have had at least one vaccine dose. This is far from achieving herd immunity, but faster vaccinations from June should allow over a billion people to be vaccinated by end-2021. Lockdowns and curfews are proving effective in Maharashtra and Delhi (the worst hotspots), but will now roll through several other states. But the base effects will help the YoY growth rates in April-May. In March 2020 there was only a week's disruption, but exports were up 60% YoY (imports 53% YoY) in March 2021, steel output up a world-leading 23.9% YoY and car production up 79% YoY in March 2021. April and May 2020 were almost wiped out economically, so the YoY growth rates will still be spectacular in Apr-May 2021, given the strong underlying momentum.The disruptions to consumption (especially) and production should be made up in the next few months. The low corporate tax rate, reformed labour market and production-linked incentives should induce a powerful surge in investment, with privatization and asset-monetization providing an extra fillip as they are implemented during the course of the year. We do not expect the liquid banking system (L-D ratio 72%) to contribute to the rebound until early-2022, with early-recapitalization of state-owned banks helping a bit, but privatizations providing a bigger spur.   

India: 2nd Covid Wave Will Delay (Not Halt) The Strength of the Economic Rebound

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)

*Cutting Your Nose To Spite Your Face: Despite the favorable Reserve Bank of India (RBI) ruling and the clarity that it may bring to bank classification of NPLs and interest charges, the fact is that Indian financial sector credit quality remains amongst the worst in Asia and globally. In fact, we would go as far to state that the breakdown in net new NPLs remains by far the worst in the world at well over 100% annualized growth at FY 3Q21. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those woes to the woodpile of Indian NPLs; and*Killing Me Softly: Following the Supreme Court decision on extending the compound interest relief to loansin excess of INR 20 mn and lifting of standstill on NPL classifications, the RBI has added insult to injury by notifying lenders that they will bear the impact of the compound interest waiver, without any visibility on whether or not this waiver will be reimbursed by or shared with the government. Non-bank Financial Companies (NBFC) have large borrowing from banks and could – as a result of the RBI’s utter incompetence – become net beneficiaries of this new guideline.

*Cutting Your Nose To Spite Your Face: Despite the favorable Reserve Bank of India (RBI) ruling and the clarity that it may bring to bank classification of NPLs and interest charges, the fact is that Indian financial sector credit quality remains amongst the worst in Asia and globally. In fact, we would go as far to state that the breakdown in net new NPLs remains by far the worst in the world at well over 100% annualized growth at FY 3Q21. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those woes to the woodpile of Indian NPLs; and*Killing Me Softly: Following the Supreme Court decision on extending the compound interest relief to loansin excess of INR 20 mn and lifting of standstill on NPL classifications, the RBI has added insult to injury by notifying lenders that they will bear the impact of the compound interest waiver, without any visibility on whether or not this waiver will be reimbursed by or shared with the government. Non-bank Financial Companies (NBFC) have large borrowing from banks and could – as a result of the RBI’s utter incompetence – become net beneficiaries of this new guideline.

Reserve Bank of India – Thanks For Nothing

*Emergency Funding Plan: The Emergency Credit Line Guarantee Scheme (ECLGS) for Indian SMEs was launched in May 2020 under the Indian government’s ‘Atmanirbhar’ or self-sufficiency package in order to help offset the weakened economic conditions resultant of COVID-19; and *Another Three Months: Recently, the Indian government announced that it will be extending the ECLGS window for three additional months through June 2021, allowing the local banks to provide collateral-free loans to a wider scope of sectors. The additional sectors include: hospitality, travel &amp; tourism, leisure and sports.

*Emergency Funding Plan: The Emergency Credit Line Guarantee Scheme (ECLGS) for Indian SMEs was launched in May 2020 under the Indian government’s ‘Atmanirbhar’ or self-sufficiency package in order to help offset the weakened economic conditions resultant of COVID-19; and *Another Three Months: Recently, the Indian government announced that it will be extending the ECLGS window for three additional months through June 2021, allowing the local banks to provide collateral-free loans to a wider scope of sectors. The additional sectors include: hospitality, travel &amp; tourism, leisure and sports.

India Financials – Extending Emergency Relief

*Can Kicked Less Far: On March 23, 2021, the Supreme Court in a final ruling  rejected pleas for a complete waiver of interest on loans under moratorium; ; and*Good News For Banks Is Still Bad News: Despite the favorable RBI Supreme Court ruling, Indian financial sector credit quality remains amongst the worst in Asia and globally. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those to the woodpile of Indian NPLs. Massive capital raises need to occur within the sector.

*Can Kicked Less Far: On March 23, 2021, the Supreme Court in a final ruling  rejected pleas for a complete waiver of interest on loans under moratorium; ; and*Good News For Banks Is Still Bad News: Despite the favorable RBI Supreme Court ruling, Indian financial sector credit quality remains amongst the worst in Asia and globally. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those to the woodpile of Indian NPLs. Massive capital raises need to occur within the sector.  

Reserve Bank of India – Heads You Win, Tails I Lose

*Banks’ Insurance Investment Restrictions On The Way: Although not confirmed, the Reserve Bank of India (RBI) is contemplating limiting bank ownership in insurance companies to a maximum 20% stake. The RBI is apparently growing uncomfortable with the higher ownership in insurers due to their higher capital requirements.  Instead, the RBI would prefer that its constituent banks focus on their core business; and*RBI Has More Important Things To Concern Itself With: Given where we are in the credit cycle – with annualized net new NPL growth in many instances exceeding 100% and banks already insolvent, it would appear that the RBI has better things to concern itself over rather than a bank’s low absolute investment in insurance companies – investments which are posting positive results unlike most core businesses of the Indian commercial banks.

*Banks’ Insurance Investment Restrictions On The Way: Although not confirmed, the Reserve Bank of India (RBI) is contemplating limiting bank ownership in insurance companies to a maximum 20% stake. The RBI is apparently growing uncomfortable with the higher ownership in insurers due to their higher capital requirements.  Instead, the RBI would prefer that its constituent banks focus on their core business; and*RBI Has More Important Things To Concern Itself With: Given where we are in the credit cycle – with annualized net new NPL growth in many instances exceeding 100% and banks already insolvent, it would appear that the RBI has better things to concern itself over rather than a bank’s low absolute investment in insurance companies – investments which are posting positive results unlike most core businesses of the Indian commercial banks.  

Reserve Bank of India – Idle Hands Are The Devil’s Workshop

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: 2nd Covid Wave Will Delay (Not Halt) The Strength of the Economic Rebound

Underweight India near-term amid Covid uncertainty. But real GDP still to grow 12% in FY2021/22, with output growth aided by ultralow base in Apr...

Prasenjit K. Basu

Reserve Bank of India – Thanks For Nothing

RESERVE BANK OF INDIA: Following the Supreme Court decision, the RBI has added insult to injury by telling the banks to bear the impact of the...

Thomas J. Monaco

India Financials – Extending Emergency Relief

INDIA FINANCIALS: The Indian government announced that it will be extending the ECLGS window for three additional months, allowing the local banks...

Thomas J. Monaco

Reserve Bank of India – Heads You Win, Tails I Lose

RESERVE BANK OF INDIA: The Supreme Court rejected pleas for a complete waiver of interest on loans under moratorium. Nevertheless, the Indian...

Thomas J. Monaco

Reserve Bank of India – Idle Hands Are The Devil’s Workshop

RESERVE BANK OF INDIA: The RBI is contemplating limiting bank ownership in insurance companies to a maximum 20%. Given where we are in the credit...

Thomas J. Monaco