David Fuller and Eoin Treacy's Comment of the Day
Category - India

    Major international luxury brands to open stores in Mumbai�s new luxury mall

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    Global luxury brands such as Gucci, Cartier, and Louis Vuitton, among others, have signed leases for retail spaces in a new Mumbai mall developed by Asia’s richest Mukesh Ambani, as the brands and Reliance Industries look to tap lucrative prospects presented by India’s robust economic growth and the swift increase in the number of millionaires.

    Jio World Plaza is likely to open this year, Reuters said citing an unnamed source. The new mall is situated within Reliance Industries’ extensive $1 billion business and cultural complex in Mumbai’s bustling business district.

    More than a dozen luxury consumer goods brands are entering the country ahead of the festive season, as they look to attract consumers in a market riding on the growing affluence of Indians with higher incomes, spurring greater discretionary spending even in small towns.

    While a K-shaped economic recovery in India is also seen to be a strong trend, according to several economists, the Asian economy has beaten almost all countries in terms of rising wealth. Remember India is home for some of the world’s richest including Mukesh Ambani and Gautam Adani.

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    India Plans to Sell 50-Year Bond on Growing Insurer Demand

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    “Investor demand has been strong, supported by the expansion of the formal sector, with households allocating a higher share of financial savings in life insurance, pensions and provident funds,” Gaura Sen Gupta, economist at IDFC FIRST Bank wrote in a note.

    The authorities are trying to increase the tenure of debt sold and expect yields to decline after India’s inclusion in JPMorgan Chase & Co.’s emerging market index, a government official, who didn’t want to be named, told reporters.

    The government will sell 300 billion rupees ($3.6 billion) of the 50-year bond in the October to February period, which accounts for almost 5% of its total borrowings.  

    The growing footprint of life insurers — which now own a quarter of government debt — has already impacted the nation’s yield curve. Earlier in the year, longer-dated debt was priced at lower yields than shorter-maturity paper.

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    'Irrational Exuberance' Driving India Mid-Caps, Strategist Says

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    Prasad said he is dropping his recommended mid-cap portfolio as he has “largely run out of options” in trying to pick stocks that offer further upside potential. His view echoes sentiment from JPMorgan Chase & Co., whose India strategist Sanjay Mookim told Bloomberg earlier this month that the outperformance of smaller companies is in “extreme territory”.

    In contrast, HSBC Securities Strategist Amit Sachdeva last week said that the rally in Indian mid-cap stocks had only progressed about half way, based on past cycles. And Goldman Sachs Group Inc. notes that mid-caps are becoming more popular with investors in Indian stocks, showing confidence in the market even despite concerns over high valuations.

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    Jaguar Land Rover Owner Tata Beats Profit Estimate With Ease

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    Tata Motors Ltd. reported better-than-expected first-quarter income as supply-chain constraints eased, helping to lift sales of luxury cars.

    Net income was 32 billion rupees ($391 million) in the three months through June, compared with a loss of 50 billion rupees a year earlier, the Mumbai-based company said in a statement Tuesday. Analyst estimates on average were for net profit of 24.5 billion rupees.

    Luxury unit Jaguar Land Rover posted a quarterly profit before tax of £435 million ($559 million), compared with a loss of £524 million the year before. JLR’s quarterly revenue surged 56% to £6.9 billion, Tata Motors said. It reported a free cash flow of £451 million.

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    CPI Heating Up Now, RBI to Extend Hawkish Hold

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    Cumulative rains since the monsoon season started on June 1 were 30% below their long-term average on June 24. Heavy rainfall over the last few weeks has erased that deficit and cumulative rains now amount to a surplus of 2% as of July 12.

    Heavy rains have also resulted in flash floods in northern India and damaged some crops. Overall, we believe rains would be beneficial for the summer crop, but excess rains can also hurt farm output in areas that have been flooded.

    It is still early to say how the regional distribution of the rains pans out over the entire monsoon season, which lasts through September. The heightened risk of El Nino this year threatens to weaken the rain clouds over the South Asian subcontinent.

    According to our estimates, the damage to farm output from El Nino could boost headline inflation by as much as 0.5 percentage point.

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    Airbus Lands Record-Breaking Order From Indigo

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    Airbus secured the biggest aircraft order in aviation history, notching a 500-plane deal with India’s dominant airline, IndiGo. The mammoth accord for Airbus’s top-selling A320 family of single-aisle jets brings IndiGo’s order backlog to close to 1,000 planes as extends its lead in the world’s fastest-growing large market for aviation.

    “No one has ever ordered an order of this magnitude,” IndiGo Chief Executive Officer Pieter Elbers said from the podium. “It speaks to the potential of Indian aviation and the ambitions which Indigo is having.”

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    Goldman's Biggest Office Beyond New York Attests to India's Rise

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    “Over the last 30 years, while China specialized in becoming the world’s factory, India specialized in becoming the world’s back office,” said Duvvuri Subbarao, a former governor of the Reserve Bank of India. “Over the years, India moved up the value chain,” he said. But it can’t “take its comparative advantage for granted.”

    India has roughly 1,600 of the centers, more than 40% of the number worldwide, according to Nasscom, a trade body for the country’s technology industry. Dotted around Bengaluru, formerly known as Bangalore, are the offices of luxury retailer Saks Fifth Avenue Inc., aircraft-engine maker Rolls-Royce Holdings Plc, US bank Wells Fargo & Co. and Japanese e-commerce firm Rakuten Group Inc. Some 66 global companies set up their first GCC in India in 2022. Even the lingerie brand Victoria’s Secret & Co. has a Bengaluru GCC.

    The Siemens Healthineers GCC in Bengaluru. India has roughly 1,600 of GCCs, more than 40% of the number worldwide, according to Nasscom.

    The offices generated about $46 billion in combined revenue in the fiscal year ended March, more than the output of Nepal. 

    The qualities that turned India into the world’s back office starting decades ago are propelling GCCs’ metamorphosis: a vast pool of young people, an education system that emphasizes science and technology, and the lower staffing costs that made India attractive in the first place. Add an unforeseen catalyst: the pandemic, which convinced decision-makers jobs can be done anywhere, including far-flung shores.

    “India’s story starts with its demographics and its talent,” said Gunjan Samtani, the country head of Goldman Sachs Services Pvt, the entity that operates the bank’s GCCs in India. A software engineer by trade, he still codes from time to time. “What brought us here even two decades back was our ability to get access to technology and talent.”

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    GDP Surprises Up - Tailwinds Are Here to Stay

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    India’s GDP growth increased to 6.1% year on year in January-March, from an upwardly revised 4.5% in the final quarter of last year. The reading exceeded even our forecast of 5.7% — the highest in a Bloomberg News survey — and was 1.1 percentage points higher than the consensus estimate.

    For fiscal 2022, which ended March 31, that translates into GDP growth of 7.2%, higher than the government’s second advance estimate of 7%. This was in line with our forecast, but 0.2 ppt higher than the consensus estimate.

    Key drivers behind the positive data surprise included government subsidies that are energizing the electronics sector, multinationals shifting back-office business to India to reduce costs, and stronger real credit growth.

    The Reserve Bank of India’s cumulative 250 basis points of repo rate increases in this cycle didn’t appear to have any meaningful impact. The construction sector, which is most sensitive to interest rates, also recorded higher growth in 1Q.

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    Rand at Record Low on Fears Russia Row Will Hit US Trade Ties

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    Relations between South Africa and the US — its second-biggest trading partner after China — have soured over Pretoria’s insistence that it is taking a non-aligned stance toward Russia’s war in Ukraine. Even so, South Africa participated in naval exercises with Russia recently, while officials of the ruling African National Congress have expressed support for Russia’s invasion of Ukraine.

    State Department spokesman Vedant Patel wouldn’t be drawn on whether the US would consider sanctions against South Africa should the arms claim prove true, but added during a regular State Department briefing Thursday that the US had “serious concerns” about a sanctioned Russian vessel docking in a South African port.

    “The political stakes are high, with trade deals and market access all now in question,” economists at Rand Merchant Bank wrote in a client note. “This will add an additional layer of risk until the debate around this has cleared, and the rand should reflect that risk premium.”

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