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)

*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

*Yield Steepening Likely Leads To FRB Action: The recent turmoil in the US bond market has now led to expectations that the Federal Reserve Board (FRB) may announce interest rate policy tweaks as soon as its next meeting on March 16th. The FRB appears to seek inflation, and the question would appear to be when (not if) the FRB will become more aggressive in preventing the long end of the curve from further steepening; and*Watch Your Financial Positions: Coupled with a rapid economic recovery  - especially given the US lead with vaccination rollouts, the steep yield curve has led to YTD US financial sector outperformance. However, if the FRB begins flattening the yield curve, sentiment is likely to quickly turn. As such, near-term caution for financials is likely warranted ahead of next FRB meeting as the recent bond market volatility is likely to force the FRB’s hand on Yield Curve Control (YCC).

*Yield Steepening Likely Leads To FRB Action: The recent turmoil in the US bond market has now led to expectations that the Federal Reserve Board (FRB) may announce interest rate policy tweaks as soon as its next meeting on March 16th. The FRB appears to seek inflation, and the question would appear to be when (not if) the FRB will become more aggressive in preventing the long end of the curve from further steepening; and*Watch Your Financial Positions: Coupled with a rapid economic recovery  - especially given the US lead with vaccination rollouts, the steep yield curve has led to YTD US financial sector outperformance. However, if the FRB begins flattening the yield curve, sentiment is likely to quickly turn. As such, near-term caution for financials is likely warranted ahead of next FRB meeting as the recent bond market volatility is likely to force the FRB’s hand on Yield Curve Control (YCC).

Federal Reserve Board – Doing The Twist

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

India's nominal GDP increased 4.3% YoY in Oct-Dec 2020, although real GDP was only reported to have increased 1% YoY (based on production-side estimates). The implicit GDP deflator thus increased 3.3% YoY -- much more than the average WPI inflation rate of 1.66% YoY during the quarter. Using expenditure-side estimates, nominal GDP grew even faster (+5.3% YoY), although the reported real increase in GDE was only 0.4% YoY -- implying an increase in the GDE deflator of 3.9% YoY. While this appears consistent with the higher CPI inflation rate, the GDE deflator also takes account of the GFCF and net export deflators, neither of which were rising much. So it is likely that the GDP estimates for that quarter will be revised up eventually. The most encouraging aspect of the GDE estimates was that fixed investment spending (GFCF) increased 2.6% YoY in the Oct-Dec 2020 quarter, the first such increase in a year. This suggests that the production-linked incentives (PLI) and sharply-lower corporate tax rates are beginning to spur a revival in investment spending, not just in FDI (which was doing well anyway, but remains a small proportion of overall GFCF).  As investment gains momentum, the additional capacity creation will dampen costs and prices. Additionally, CPI inflation was artificially high in April-November 2020 because of supply disruptions and bottlenecks arising from the strict lockdown in April-June, which only eased gradually in subsequent months. CPI inflation has already eased to 4.06% YoY in January 2021. Compared with the high base in Apr-Nov 2020, CPI inflation is likely to ease toward 3% YoY by June 2021, obliging the RBI to cut its policy rate by 50bp (to 3.5%) by September 2021. We continue to expect a powerful economic recovery to occur in FY2021/22, helped by the low base from a year ago, the slew of fiscal incentives, an acceleration in privatization (which will crowd-in private investment, already enthused by low tax rates) and a surge of public investment. The decline in policy rates will be the icing on the cake, helping to deliver real GDP growth of 13.5% YoY in FY2021/22.

India's nominal GDP increased 4.3% YoY in Oct-Dec 2020, although real GDP was only reported to have increased 1% YoY (based on production-side estimates). The implicit GDP deflator thus increased 3.3% YoY -- much more than the average WPI inflation rate of 1.66% YoY during the quarter. Using expenditure-side estimates, nominal GDP grew even faster (+5.3% YoY), although the reported real increase in GDE was only 0.4% YoY -- implying an increase in the GDE deflator of 3.9% YoY. While this appears consistent with the higher CPI inflation rate, the GDE deflator also takes account of the GFCF and net export deflators, neither of which were rising much. So it is likely that the GDP estimates for that quarter will be revised up eventually. The most encouraging aspect of the GDE estimates was that fixed investment spending (GFCF) increased 2.6% YoY in the Oct-Dec 2020 quarter, the first such increase in a year. This suggests that the production-linked incentives (PLI) and sharply-lower corporate tax rates are beginning to spur a revival in investment spending, not just in FDI (which was doing well anyway, but remains a small proportion of overall GFCF).  As investment gains momentum, the additional capacity creation will dampen costs and prices. Additionally, CPI inflation was artificially high in April-November 2020 because of supply disruptions and bottlenecks arising from the strict lockdown in April-June, which only eased gradually in subsequent months. CPI inflation has already eased to 4.06% YoY in January 2021. Compared with the high base in Apr-Nov 2020, CPI inflation is likely to ease toward 3% YoY by June 2021, obliging the RBI to cut its policy rate by 50bp (to 3.5%) by September 2021. We continue to expect a powerful economic recovery to occur in FY2021/22, helped by the low base from a year ago, the slew of fiscal incentives, an acceleration in privatization (which will crowd-in private investment, already enthused by low tax rates) and a surge of public investment. The decline in policy rates will be the icing on the cake, helping to deliver real GDP growth of 13.5% YoY in FY2021/22.   

India: Easing Inflation Will Oblige RBI to Cut Policy Rates in the Next Half Year

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 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

Federal Reserve Board – Doing The Twist

FEDERAL RESERVE BOARD: There are expectations of FRB interest rate policy tweaks as soon as its next meeting. If the FRB flattens the curve,...

Thomas J. Monaco

India: Easing Inflation Will Oblige RBI to Cut Policy Rates in the Next Half Year

Nominal GDP was up 5.3%YoY in Oct-Dec 2020, although real GDP rose only 1%YoY. But CPI inflation will likely be below 3%YoY by June, forcing a 50bp...

Prasenjit K. Basu