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EXCLUSIVE
FPI EQUITY OUTFLOWS TOUCH $15 BN IN JAN-MARCH 2022, HIGHEST IN LAST 15 YEARS
Past instances of high FPI outflows saw very high turbulence in the Indian
markets, and saw market drops of over 20%. This time however, the market impact
was significantly lower
* Sunainaa Chadha
* April 11, 2022, 14:33 IST
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NEW DELHI: Even though Indian equity markets Indian equity markets outperformed
both emerging and developed markets last week, foreign portfolio equity outflow
from India has been $15 billion or 0.5% of market cap during the January-March
2022 period- the highest in terms of absolute size and third highest in terms of
percentage of market cap in last 15 year, shows data analyzed by brokerage firm
Antique Limited.
" We believe that most of the macro risk is priced in and these near term
uncertainties should be used to build portfolio around capex related themes...We
expect normalization in FPI equity flows, which along with strong domestic flows
should support the market. Also April has been historically seasonally strong
month (having delivered highest average monthly return relative to other months)
driven by Pharma, Metals and Auto. The only key risk remains is delayed
resolution in the on-going Russia-Ukraine crisis," said Pankaj Chhaochharia,
analyst at Antique Limited.
Past instances of high FPI outflows saw very high turbulence in the Indian
markets, and saw market drops of over 20%. This time however, the market impact
was significantly lower. Significant buying by DIIs (Domestic Institutional
Investors) was observed in the same period, approximately Rs 1 lakh crore.
Retail investors too have seen increasingly higher traction in the Indian
markets, evidenced in the fact that investor accounts with depositories have
more than doubled over the past two years to 8.7 crore accounts.
A key takeaway amid the recent episode of FPI outflows is that Indian equity
markets, over the years, have grown relatively immune to the direction of FPI
participation. This can be seen with the muted impact on broad market indices.
Further, the recent past having seen large quantum of FPI outflows, any mean
reversion or a reverse swing of the pendulum could see a positive reaction in
the markets. The key immediate risk would be rapidly evolving geo-political
situation surrounding Russia-Ukraine crisis, which is likely to determine the
near term trend of FPI flows," said HDFC in a report.
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INDUSTRY
* 2 hrs ago
WARREN BUFFETT'S $11.6 BILLION DEAL STARTED WITH A DINNER IN NEW YORK
* 2 hrs ago
NIRAV’S AIDE CAUGHT FROM CAIRO, INSTRUMENTAL IN HIDING DUMMY DIRECTORS
* 4 hrs ago
STARTUPS, ECOMMERCE AND IT FIRMS DRIVE DEAL VALUES IN Q1 2022: REPORT
* 5 hrs ago
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* 5 hrs ago
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BFSI VIDEOS
* THE WORD 'BANKING' HAS IMPROVED, BUT BANKING HAS NOT: ZAGGLE FOUNDER RAJ N
Raj N, founder and chairman of Zaggle, believes that the banking sector is at
a cross-section - either it has to evolve from here or it has to die.
"Earlier banks used to invest in FinTechs, but today the scenario is
reversed.. and a couple of scenarios have emerged where FinTechs have bought
a bank out," Raj said. This is happening because consumers want everything
"on the click", and has moved to a mobile revolution. "While the word banking
has improved, what has not improved is banking.. which for us is a great
opportunity.. and in the next five years, we would be at the forefront to
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FinTech Diary of this week.
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EXCLUSIVE
WARREN BUFFETT'S $11.6 BILLION DEAL STARTED WITH A DINNER IN NEW YORK
A New York City dinner between Warren Buffett and Alleghany Corp Chief Executive
Officer Joseph Brandon kicked off one of Berkshire Hathaway Inc's latest deal
hunts. At that dinner, Buffett insisted that the price wouldn't include fees for
financial advisers.
* Bloomberg
Click Here to Read This Story
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A New York City dinner between Warren Buffett and Alleghany Corp Chief Executive
Officer Joseph Brandon kicked off one of Berkshire Hathaway Inc's latest deal
hunts.
The pair met for dinner on March 7, when Buffett made it clear that Berkshire
was interested in buying Alleghany for $850 a share, according to a regulatory
filing released Monday. That conversation would jump-start Berkshire's bid for
Alleghany that culminated in a $11.6 billion deal for the insurer announced
later that month.
It's one of the biggest acquisitions in years for Berkshire and Buffett, its
billionaire CEO. He has revved up his deal machine recently, with the
conglomerate also buying up shares in Occidental Petroleum Corp. and revealing a
new equity bet on HP Inc.
At that dinner, Buffett insisted that the price wouldn't include fees for
financial advisers. That quirk resulted in an odd $848.02 announced deal price.
The fee for Goldman Sachs Group Inc, which is advising Alleghany, would come out
of the proceeds for insurer's shareholders.
The agreement would have to survive some push-back by Alleghany's negotiators.
Jefferson Kirby, the company's chairman, pushed Buffett on the price at a
meeting in Omaha, asking him to increase the offer or eliminate the deduction
for the financial adviser fee. He also pushed for a lucrative -- but often
unattainable -- feature in a Buffett deal: Using Berkshire shares as a portion
of the offer. Buffett, who has talked about his dismay in using Berkshire stock
to buy Dexter Shoe and General Re, held firm.
Goldman ultimately contacted 23 potential strategic bidders and eight potential
financial-sponsor bidders during a "go-shop" period to see if they'd have a
superior offer for Alleghany, the filing shows. The go-shop period ends at
11:59pm New York time on April 14.
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EXCLUSIVE
NIRAV’S AIDE CAUGHT FROM CAIRO, INSTRUMENTAL IN HIDING DUMMY DIRECTORS
CBI nabbed Subhash Shankar, close associate of fugitive diamond merchant Nirav
Modi, at Cario in Egypt and brought him to Mumbai. The CBI arrested him in the
PNB bank fraud case connected to Nirav Modi.
* Vijay V Singh
* TNN
Click Here to Read This Story
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MUMBAI: CBI nabbed Subhash Shankar Parab, a close associate of fugitive diamond
merchant Nirav Modi, at Cairo in Egypt and brought him Mumbai on Tuesday. The
CBI arrested him in the Punjab National Bank (PNB) loan fraud case connected to
Nirav Modi.
The CBI likely to produce him before a special court in Mumbai for his remand.
Subhash was instrumental in keeping the dummy directors of Nirav Modi’s shell
companies involved in the fraud at at Cairo to avoid their arrest in the case
after the CBI and Enforcement Directorate (ED) had registered cases against him
in India for Rs 6,500 crore PNB loan fraud case.
Nirav’s brother Nehal had instructed Subhash Parab for keeping the dummy
directors at Cairo safely after learning that the Indian government agencies
were searching for them.
The CBI was searching for Subhash Parab since last many years. In 2018, Interpol
had issued a red corner notice (RCN) against him.
The dummy directors were based in Hong Kong from where they were managed the
affairs of Nirav’s shell companies involved in the fraud. After the CBI and ED
cases, Nehal Modi, Nirav Modi's US-based stepbrother,
destroyed mobile phones of all dummy directors and shifted them to Cairo with
the help of Subhash Parab.
Nirav Modi had allegedly cheated the PNB Rs 6,500 crore, through fraudulently
generated Letter of Undertaking (LoU), in connivance of then PNB’s executives
after showing fraudulent import-export of diamond between companies in India and
Dubai, Hong Kong. All these companies were controlled by Nirav Modi with the
help of the dummy directors.
The bank would released money into accounts of the companies abroad after
verifying the fraudulently issued LoU. But the bank unable to detect the fraud
for years as Nirav had bribed the concerned PNB officials to help him to cheat
the bank. After getting the money into the account of his shell companies
abroad, Nirav would transfer part of the money into accounts of his family
members and used the remaining money to clear previous LoU dues.
Each time he would request a higher amount of LoU, so that he could pay off
previous ones and use the remaining money for himself. Afterwards he defaults
the payments.
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EXCLUSIVE
STARTUPS, ECOMMERCE AND IT FIRMS DRIVE DEAL VALUES IN Q1 2022: REPORT
Startups recorded the highest number of private equity deals and M&As, according
to Grant Thornton Bharat’s Dealtracker report for Jan-March 2022.
* Aishwarya Dabhade
* ETtech
Click Here to Read This Story
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Mumbai: Despite entering 2022 under the shadow of Omicron, and Russia’s invasion
of Ukraine, India Inc. outperformed itself on private equity (PE) investments
and M&As in the first quarter of calendar year 2022 compared to the same period
last year, according to Grant Thornton Bharat’s Dealtracker report for Q1
(Jan-March) of 2022. After record-breaking deal activity in 2021, India Inc
clocked 608 deals aggregating to $13.3 billion in the quarter. That is a 49%
jump in deal volumes and a 9% increase in deal values from the same quarter last
year.
According to the report, 25 deals of over $100 million each, 99 deals valued at
$10-99 million each, and an increased focus on startups helped the Indian
private equity (PE) funding ecosystem post a 92% increase in investment value to
$9.4 billion from $4.9 billion in the same period last year. There were 441 PE
deals in Q1 2022, up from 299 in Q1 2021.
Byju’s $800-million fundraise was the largest deal recorded in the quarter,
followed by Swiggy’s $700 million fundraise. Through the quarter, startups such
as Zetwerk and Ola Electric Mobility also made it to the top 10 with deals worth
$210 million and $200 million, respectively.
Startups led on private equity investments in terms of number of deals, wrapping
up 283 investments worth $2.9 billion in the quarter. The ecommerce sector
mopped up $3.2 billion with just 60 deals. The quarter also saw the emergence of
11 unicorns.
Retail, tech, and fintech led investment volumes in the startup sector with 18%
each, followed by the enterprise application infrastructure segment with 12% and
edtech and health tech with 7% each. The agri-tech, auto tech, media tech,
gaming and travel, transport and logistics platform segments were also active
during the quarter.
The startup sector also continued to dominate M&A deal activity, with 58 deals
valued at $567 million in the quarter. The IT sector saw 34 such deals worth a
total of $825 million.
Overall, the number of M&A deals jumped 53% from Q1 2021, driven by a 64%
increase in domestic deal volumes.
External risks continued to rise for domestic markets, with geopolitical events
adding to existing worries of reduced liquidity amid rising inflation, the
report said.
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EXCLUSIVE
WOMEN-LED MSMES ON THE RISE; HUGE CREDIT GAP HINDRANCE TO GROWTH, SAY EXPERTS
While women entrepreneurship is on the rise, recent data by the MSME Ministry
shows that the overall share of women-led enterprises in the MSME sector is
still quite low. We spoke to a few industry players working closely with the
cohort to understand the reasons. Here's what they said.
* Sheersh Kapoor
* ETBFSI
Click Here to Read This Story
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Women entrepreneurs in the MSME sector are facing struggles of credit gap,
according to industry experts.
Bhanu Pratap Singh Verma, Minister of State MSME, earlier said that the number
of women-led MSMEs registered on Udyam Registration Portal has witnessed a
substantial increase of 75% in the financial year 2021-22 even as their share in
the total registration count was only around 17 per cent.
Around 8.59 lakh women-led MSMEs had registered in FY22 (up to March 28, 2022)
in comparison to 4.9 lakh registrations in FY21.
Out of 6.08 crore unincorporated proprietary units, 79.63% were led by men and
only 20.37% were led by women, official data showed.
However, the experts believe that it is “better late than never” to have more
and more participation from women.
$158 billion credit gap
Reports have highlighted that the finance gap for women-owned small businesses
in India is $158 billion, said Gurjodhpal Singh, CEO, Tide, adding that most
women-led businesses have to finance themselves or opt for informal credit
options as banks and other financial institutions remain unsure of the business
models or guaranteed returns on loans.
He believes that one of the biggest barriers to financial institutions
supporting women entrepreneurs is the lack of reliable data segregated by
gender.
"As per a World Bank Report, women entrepreneurs in India face a rejection rate
of 19% by lending institutions in India – more than twice the rate of 8% for
men," he added.
On similar lines, Arun Nayyar, Whole Time Director and CEO, NeoGrowth
highlighted that despite having been in the business for many years, women-led
MSMEs are unable to avail loans due to a lack of credit history, or due to
inherent challenges in traditional ways of risk assessment of the borrowers.
"Timely credit plays an important role in building and scaling a business. Women
entrepreneurs are pivoting to more digital-led business models post the
pandemic. Access to credit and customised digital solutions will be key in the
post-pandemic world to nurture India’s women-led entrepreneurial ecosystem," he
said.
Entrepreneurial spirit
Alok Mittal, CEO & Co-Founder, Indifi Technologies, is of the opinion that
women-led MSMEs have the potential to be the biggest force in driving India's
economic growth.
"A recent survey that we conducted revealed that 1/3rd of the respondents were
homemakers before they started their businesses. This general uptick in women
moving into entrepreneurship is a momentum that we should keep up. With the
advent of digital lending, there is a huge opportunity for these women
entrepreneurs who were disqualified from traditional systems of lending, to
scale and expand their business while also fostering the entrepreneurial spirit
of India," he said.
Better late than never
Better late than never or better late than later, whichever way we choose to
look at it - greater participation of women in the Indian economy is the need of
the hour, and an increase in women-led SMEs is a welcome step in that direction,
said Poshak Agrawal, Co-founder & CEO of Florence Capital.
Solutions such as mobile apps, wallets, and an array of investment or neo
banking platforms have introduced innovation in accounting, financial planning,
payment solutions and vendor management - making it easier to tackle these
aspects of business operations.
"The best way to optimize the benefits of all these tech innovations is through
increased financial literacy and we need to equip women, and especially women
entrepreneurs, to utilize the numerous FinTech solutions which have been made
available," he said.
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EXCLUSIVE
HOW INDIA’S MUCH-HYPED GLOBAL BOND INDEX INCLUSION UNRAVELED
For now, global bond index inclusion appears all but impossible in the short
term.
* Bloomberg
Click Here to Read This Story
*
*
*
*
*
*
*
*
For months, India prepared for a remarkable milestone: getting its bonds listed
on global indexes. Inclusion was perceived as a crucial step change for the $1
trillion market. Banks penciled in inflows of as much as $40 billion for a
country that has long lagged behind peers in tapping international wealth.
The timeline seemed so final that Citigroup Inc. advised its clients to buy
Indian debt in anticipation that key tax exemptions would be announced to
facilitate the change. Policy makers and analysts predicted inclusion as early
as April 1, the start of the new financial year.
So it came as a shock when Finance Minister Nirmala Sitharaman didn’t make any
mention of it in her February budget speech. The sudden silence puzzled traders.
Within a day, Citi reversed its buy-call. Local debt markets saw the sharpest
sell-off in almost two years. It was as if a plan had never existed.
In interviews, Indian officials who were part of discussions described how
politics and contentious tax negotiations intertwined to stall progress. Bankers
worried about volatile inflows. Powerful Hindu nationalist groups raised
eleventh hour concerns that exempting foreigners from taxes would lead to
discrimination against domestic investors, according to the people, who asked
not to be identified citing privacy rules.
Now, many believe inclusion isn’t likely for at least a year. Officials say a
path forward isn’t possible until Group of 20 nations reach a consensus on a
country’s right to tax capital gains, another pressure point for India.
“From India’s perspective, we are losing an opportunity to tap a pool of
liquidity and an investor base,” said Nagaraj Kulkarni, Senior Asia Rates
Strategist at Standard Chartered Plc in Singapore. “From a foreign investors’
perspective, India is one of the largest EM bond markets that is yet to be
included in major bond indexes.”
With inclusion shelved, “investors lose out on a relatively high-yielding market
that also offers risk diversification benefits,” he said.
An About-Face
The challenges facing India are partly structural.
Global investors want India to get its bonds on international clearing
platforms, which help settle securities transactions. For that to happen,
Euroclear, one of the major ones, has pushed India to exempt the transactions
from taxes to avoid compliance issues. Other countries using the platform follow
that policy.
In India, progress seemed steady. In September, a senior official from the
finance ministry said most of the work had been done. Tax authorities appeared
ready to exempt these transactions, according to a person familiar with the
matter. Morgan Stanley predicted inclusion to some indexes as early as the
second quarter of 2022. FTSE Russell put India on its watchlist.
Sitharaman was supposed to reveal the change in the Feb. 1 budget talk.
Euroclear expected the tweak right up until the speech, according to a finance
ministry official.
When she said nothing, Euroclear was caught off-guard, the official said. So was
the market: Citi quickly reversed its buy-call on India long bonds. Traders
called the ministry searching for answers.
Euroclear didn’t reply to multiple requests for comment. A spokesperson for
India’s finance ministry didn’t respond to an email seeking clarification.
What Went Wrong
In hindsight, officials said India’s reversal connects to an October
announcement from the Organisation for Economic Co-operation and Development,
the Paris-based group that develops international fiscal policy.
To address tax avoidance issues, the OECD helped broker an agreement with 136
countries to implement a global minimum rate. India, which is a member of the
group, took the position that countries had the right to tax capital gains based
on the location of underlying assets.
That created an optics problem. In discussions about index inclusion, the
finance ministry had carved out a path to exempt international bond transactions
from taxes. Now, Indian authorities had put forward a different perspective at
public OECD forums. Around the beginning of 2022, the tax department, worried
about this contradiction, made a decision not to follow through with the
exemption, people familiar with the matter said.
Meanwhile, in January, Hindu nationalist groups linked to Prime Minister
Narendra Modi’s party met with senior government officials. They argued that it
was unfair for foreigners to receive tax waivers when local investors did not
get similar benefits.
These groups have enjoyed increasing clout since Modi rose to power in 2014,
partly because they can influence local businesses -- his party’s traditional
vote bank. Every year, they hold informal discussions with the government ahead
of the budget, one person said. In 2019, when the groups opposed a plan to issue
a dollar-denominated sovereign bond, the proposal was scrapped. Their opposition
contributed to the transfer of a top bureaucrat who supported it.
“There is no reason why we should give advantages to foreign investors,” Ashwani
Mahajan, one of the leaders of Swadeshi Jagran Manch, a Hindu nationalist group,
told Bloomberg a few days before the February budget speech.
Looking Ahead
For now, index inclusion appears all but impossible in the short term.
In a recent interview with Bloomberg, Ajay Seth, the secretary of India’s
economic affairs ministry, said index providers made last minute requests. Other
officials said Euroclear kept moving its goal post, including tax changes beyond
the capital gains issue.
The inclusion delay has already impacted India’s bond market. In recent months,
yields rose amid a surge in global crude prices. Key banks are adjusting
interest rates to keep pace with inflation. That’s a concern for the government
as it plans to borrow a record amount from the markets to bridge a wide fiscal
gap.
“With a large supply looming, yields on government securities are likely to
harden once next fiscal’s borrowing commences in April,” said Aditi Nayar, chief
economist at ICRA Ltd., the local unit of Moody’s Investors Service. “If there
are concrete steps toward bond index inclusion during the year, it could help to
cap yields.”
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EXCLUSIVE
RUSSIA'S WAR TO SHRINK UKRAINE ECONOMY 45 PER CENT: WORLD BANK
The war is set to inflict twice the amount of economic damage across Europe and
Central Asia that the COVID-19 pandemic did, the Washington-based lender said in
its "War in the Region" economic report.
* AP
Click Here to Read This Story
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Ukraine's economy will shrink by 45.1 per cent this year because of Russia's
invasion, which has shut down half of the country's businesses, choked off
imports and exports, and damaged a vast amount of critical infrastructure, the
World Bank has said. Unprecedented sanctions imposed by Western allies in
response to the war, meanwhile, are plunging Russia into a deep recession,
lopping off more than a tenth of its economic growth, said the World Bank report
on Sunday.
The war is set to inflict twice the amount of economic damage across Europe and
Central Asia that the COVID-19 pandemic did, the Washington-based lender said in
its "War in the Region" economic report.
"The magnitude of the humanitarian crisis unleashed by the war is staggering,"
said Anna Bjerde, the World Bank's vice president for the Europe and Central
Asia region.
"The Russian invasion is delivering a massive blow to Ukraine's economy and it
has inflicted enormous damage to infrastructure."
The report said economic activity was impossible in "large swathes of areas" in
Ukraine because productive infrastructure like roads, bridges, ports and train
tracks had been destroyed.
Ukraine plays a major role as a global supplier of agricultural exports like
wheat but that's in question now because planting and harvesting have been
disrupted by the war, the report said.
The war has cut off access to the Black Sea, a key route for exports, including
90 per cent of Ukraine's grain shipments, it said.
The World Bank said the humanitarian catastrophe will be the biggest shockwave
from the war and likely its most enduring legacy, as the wave of refugees
fleeing Ukraine is "anticipated to dwarf previous crises".
More than four million people have fled Ukraine, with more than half going to
Poland and others heading to countries like Moldova, Romania and Hungary.
An additional 6.5 million have been displaced internally. Those numbers are
expected to swell as the war drags on, the World Bank said.
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EXCLUSIVE
FOOD PRICES LIKELY PUSHED INFLATION TO 16-MONTH HIGH IN MARCH: REUTERS POLL
India's retail inflation likely sped up to a 16-month high of 6.35% in March,
well above the Reserve Bank of India's upper tolerance band for a third straight
month, in part due to a sustained rise in food prices, a Reuters poll found.
* Reuters
Click Here to Read This Story
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BENGALURU: India's retail inflation likely sped up to a 16-month high of 6.35%
in March, well above the Reserve Bank of India's upper tolerance band for a
third straight month, in part due to a sustained rise in food prices, a Reuters
poll found.
The full effect of the spike in crude oil and global energy prices following
Russia's invasion of Ukraine in late February is not expected to appear in
consumer prices until April as the pass-through to consumers at fuel pumps was
delayed.
The April 4-8 Reuters poll of 48 economists suggested inflation, as measured by
the consumer price index (CPI), rose to 6.35% in March on an annual basis, from
6.07% in February. That would be the highest reading since November 2020.
Forecasts for the data, due for release on April 12 around 1200 GMT, ranged
between 6.06% and 6.50%. None expected it to fall under 6%, the top end of the
RBI's tolerance band.
"We expect headline inflation to have accelerated to 6.30% y/y as food prices
edged higher in sequential terms after a three-month decline until February,"
said Dhiraj Nim, an economist at ANZ, referring to the seasonal pattern in
monthly changes in food prices.
Food prices, which account for nearly half the inflation basket, are also
expected to remain elevated as supply chain problems related to the
Russia-Ukraine war disrupt global grain production, supply of edible oils and
fertiliser exports.
Prices of palm oil, the world's most widely used vegetable oil, surged nearly
50% this year. Food price rises are sharply felt by millions living below the
poverty line who have already taken a hit on jobs and incomes due to the
pandemic.
Samiran Chakraborty, chief economist for India at Citi, said global commodity
price rises will turn up in the March inflation numbers, as well as edible oils.
"Although there was a delay in the start of petrol price hikes post-state
elections, retail prices have still risen by Rs 6.5/ltr over the last 10 days of
March," Chakraborty said.
Unlike major central banks which are faced with inflation rates at multi-decade
highs, the RBI has opted to leave interest rates steady even as inflation has
crept well above its target and shows no signs of abating any time soon.
The RBI again left its key repo rate unchanged at a record low of 4.0% on
Friday. But analysts are beginning to show concern that the right time to have
begun raising interest rates may have already passed.
"They are well behind the curve. What the Fed actions have shown us is that the
moment you get to know you were wrong about inflation being transitory, you are
forced to act in a more aggressive way," said Kunal Kundu, India economist at
Societe Generale.
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EXCLUSIVE
CHARTING GLOBAL ECONOMY: SOARING FOOD COSTS RISK DESTABILIZATION
The costs of staples such as wheat and cooking oils continue to accelerate as
Russia’s war in Ukraine, a key exporter of commodities, upends trade and fuels
concern about shortages.
* Bloomberg
Click Here to Read This Story
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Record-high food inflation is tightening its grip on the global economy, most
critically in developing nations where financial distress is contributing to
increased political instability.
The costs of staples such as wheat and cooking oils continue to accelerate as
Russia’s war in Ukraine, a key exporter of commodities, upends trade and fuels
concern about shortages. High energy prices are also adding to inflationary
pressures.
In Sri Lanka, consumer prices accelerated to about 19% -- the highest in Asia --
and could keep climbing to 25%, according to the central bank, which just
increased interest rates by an unprecedented seven percentage points. The
soaring costs have sparked street protests calling for the president’s ouster.
An emergency meeting by Pakistan’s central bankers resulted in the biggest rate
hike since 1996 as more political chaos and higher oil prices risk developing
into a full-blown economic crisis.
Here are some of the charts that appeared on Bloomberg this week on the latest
developments in the global economy:
World
Global food prices are surging at the fastest pace ever as Russia’s war in
Ukraine chokes crop supplies, piling more inflationary pain on consumers and
worsening a global hunger crisis. The war has wreaked havoc on supply chains in
the crucial Black Sea breadbasket region, upending global trade flows and
fueling panic about shortages of key staples such as wheat and cooking oils.
Across Ukraine’s farm belt, silos are bursting with 15 million tons of corn from
the autumn harvest, most of which should have been hitting world markets. The
stockpiles — about half the corn Ukraine had been expected to export for the
season — have become increasingly difficult to get to buyers, providing a
glimpse into the war has wrought in the approximately $120 billion global grains
trade.
Emerging Markets
Pakistan’s central bank raised interest rates by 250 basis points following an
emergency meeting, as escalating political chaos at home and higher global oil
prices threaten to spill over into a full-blown economic crisis. The key rate
now stands at 12.25%. Central banks in Peru, Uruguay, Romania, Poland and Serbia
also tightened policy.
Sri Lanka’s central bank also raised borrowing costs -- by an unprecedented 700
basis points amid economic and political turmoil that has sparked street
protests and left President Gotabaya Rajapaksa with a minority in parliament.
Turkish inflation soared to a fresh two-decade high in March, leaving the lira
increasingly vulnerable by depriving the currency of a buffer against market
selloffs. Turkey’s ultra-loose monetary policy is out of sync with the rising
hawkishness of many of the world’s central banks at a time its economy is
bracing for commodity shocks unleashed by Russia’s invasion of Ukraine.
Europe
European natural gas prices gained after five days of declines on concerns that
Russian flows through key transit country Ukraine may be disrupted. Russian
military operations are putting the stability of flows to Europe at risk, Gas
Transmission System Operator of Ukraine said.
German factory orders fell for the first time in four months in the runup to
Russia’s invasion of Ukraine, underscoring concerns over slower growth in
Europe’s largest economy. Expectations for Germany’s economic recovery have been
slashed after the war in Ukraine sent energy prices higher.
Chancellor Olaf Scholz reiterated his opposition to reversing Germany’s exit
from nuclear power to help cut reliance on Russian energy, saying the technical
challenges would be too great. Germany is rushing to end its heavy dependence on
Russian fossil fuels but the process has been complicated by the decision by
former Chancellor Angela Merkel’s previous government to shut down the country’s
nuclear power plants.
US
The U.S. trade deficit held close to a record in February as the merchandise
shortfall shrank and the surplus in services declined, partly reflecting the
impact of broadcast rights for the Olympics. Services imports increased to a
record $51.6 billion, with about half of the rise coming from the biggest
monthly increase in charges for use of intellectual property since 2016.
Spot rates for shipping goods in containers to the U.S. from Asia fell for a
sixth straight week, the longest skid of the pandemic, as Covid-19 lockdowns
disrupt trucking, warehouses and port operations in China. The market for ocean
freight is softening partly because that’s what it typically does after Chinese
Lunar New Year. There’s also growing uncertainty about U.S. consumer demand for
goods given the broader acceleration in inflation and a shift back to services.
Asia
Containers full of frozen food and chemicals are piling up at China’s biggest
port in Shanghai as the lock down of the city and virus testing means truckers
can’t get to the docks to pick up boxes. Shanghai is now the epicenter of
China’s worst Covid outbreak in two years, with almost 20,000 new cases reported
just on Wednesday.
Japan’s household spending dropped in February for a second straight month amid
virus restrictions, adding to evidence that the economy contracted last quarter
as Prime Minister Fumio Kishida’s government mulls support measures. Outlays
fell 2.8% from January, led by drops in spending on transport, communications
and housing.
Japanese households’ inflation expectations climbed to the highest level in more
than 13 years as rising energy costs impacted sentiment, even as overall price
gains remain well below the Bank of Japan’s target.
(With assistance from Baris Balci, Arne Delfs, Megan Durisin, Toru Fujioka, Ann
Koh, Faseeh Mangi, Elena Mazneva, Brendan Murray, Michael Nienaber, Yoshiaki
Nohara, Anusha Ondaatjie, Reade Pickert, Volodymyr Verbyany and Alexander Weber)
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EXCLUSIVE
HOW INDIA’S MUCH-HYPED GLOBAL BOND INDEX INCLUSION UNRAVELED
For now, global bond index inclusion appears all but impossible in the short
term.
* Bloomberg
Click Here to Read This Story
*
*
*
*
*
*
*
*
For months, India prepared for a remarkable milestone: getting its bonds listed
on global indexes. Inclusion was perceived as a crucial step change for the $1
trillion market. Banks penciled in inflows of as much as $40 billion for a
country that has long lagged behind peers in tapping international wealth.
The timeline seemed so final that Citigroup Inc. advised its clients to buy
Indian debt in anticipation that key tax exemptions would be announced to
facilitate the change. Policy makers and analysts predicted inclusion as early
as April 1, the start of the new financial year.
So it came as a shock when Finance Minister Nirmala Sitharaman didn’t make any
mention of it in her February budget speech. The sudden silence puzzled traders.
Within a day, Citi reversed its buy-call. Local debt markets saw the sharpest
sell-off in almost two years. It was as if a plan had never existed.
In interviews, Indian officials who were part of discussions described how
politics and contentious tax negotiations intertwined to stall progress. Bankers
worried about volatile inflows. Powerful Hindu nationalist groups raised
eleventh hour concerns that exempting foreigners from taxes would lead to
discrimination against domestic investors, according to the people, who asked
not to be identified citing privacy rules.
Now, many believe inclusion isn’t likely for at least a year. Officials say a
path forward isn’t possible until Group of 20 nations reach a consensus on a
country’s right to tax capital gains, another pressure point for India.
“From India’s perspective, we are losing an opportunity to tap a pool of
liquidity and an investor base,” said Nagaraj Kulkarni, Senior Asia Rates
Strategist at Standard Chartered Plc in Singapore. “From a foreign investors’
perspective, India is one of the largest EM bond markets that is yet to be
included in major bond indexes.”
With inclusion shelved, “investors lose out on a relatively high-yielding market
that also offers risk diversification benefits,” he said.
An About-Face
The challenges facing India are partly structural.
Global investors want India to get its bonds on international clearing
platforms, which help settle securities transactions. For that to happen,
Euroclear, one of the major ones, has pushed India to exempt the transactions
from taxes to avoid compliance issues. Other countries using the platform follow
that policy.
In India, progress seemed steady. In September, a senior official from the
finance ministry said most of the work had been done. Tax authorities appeared
ready to exempt these transactions, according to a person familiar with the
matter. Morgan Stanley predicted inclusion to some indexes as early as the
second quarter of 2022. FTSE Russell put India on its watchlist.
Sitharaman was supposed to reveal the change in the Feb. 1 budget talk.
Euroclear expected the tweak right up until the speech, according to a finance
ministry official.
When she said nothing, Euroclear was caught off-guard, the official said. So was
the market: Citi quickly reversed its buy-call on India long bonds. Traders
called the ministry searching for answers.
Euroclear didn’t reply to multiple requests for comment. A spokesperson for
India’s finance ministry didn’t respond to an email seeking clarification.
What Went Wrong
In hindsight, officials said India’s reversal connects to an October
announcement from the Organisation for Economic Co-operation and Development,
the Paris-based group that develops international fiscal policy.
To address tax avoidance issues, the OECD helped broker an agreement with 136
countries to implement a global minimum rate. India, which is a member of the
group, took the position that countries had the right to tax capital gains based
on the location of underlying assets.
That created an optics problem. In discussions about index inclusion, the
finance ministry had carved out a path to exempt international bond transactions
from taxes. Now, Indian authorities had put forward a different perspective at
public OECD forums. Around the beginning of 2022, the tax department, worried
about this contradiction, made a decision not to follow through with the
exemption, people familiar with the matter said.
Meanwhile, in January, Hindu nationalist groups linked to Prime Minister
Narendra Modi’s party met with senior government officials. They argued that it
was unfair for foreigners to receive tax waivers when local investors did not
get similar benefits.
These groups have enjoyed increasing clout since Modi rose to power in 2014,
partly because they can influence local businesses -- his party’s traditional
vote bank. Every year, they hold informal discussions with the government ahead
of the budget, one person said. In 2019, when the groups opposed a plan to issue
a dollar-denominated sovereign bond, the proposal was scrapped. Their opposition
contributed to the transfer of a top bureaucrat who supported it.
“There is no reason why we should give advantages to foreign investors,” Ashwani
Mahajan, one of the leaders of Swadeshi Jagran Manch, a Hindu nationalist group,
told Bloomberg a few days before the February budget speech.
Looking Ahead
For now, index inclusion appears all but impossible in the short term.
In a recent interview with Bloomberg, Ajay Seth, the secretary of India’s
economic affairs ministry, said index providers made last minute requests. Other
officials said Euroclear kept moving its goal post, including tax changes beyond
the capital gains issue.
The inclusion delay has already impacted India’s bond market. In recent months,
yields rose amid a surge in global crude prices. Key banks are adjusting
interest rates to keep pace with inflation. That’s a concern for the government
as it plans to borrow a record amount from the markets to bridge a wide fiscal
gap.
“With a large supply looming, yields on government securities are likely to
harden once next fiscal’s borrowing commences in April,” said Aditi Nayar, chief
economist at ICRA Ltd., the local unit of Moody’s Investors Service. “If there
are concrete steps toward bond index inclusion during the year, it could help to
cap yields.”
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