Silver Point

Thomas J. Monaco

Independent Insight Provider

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

Economist, Centennial Asia Advisors

Nicholas Chia

Economist

Centennial Asia Advisors

At Centennial Asia Advisors, we tell it like it is. We have no vested interests, no need for a China wall, and no reason to skew our outlook any other way. With over 30 years experience covering Asia’s political economy, you can be sure our conclusions and analyses are based on the unadulterated facts. Through years of fine-tuning our research methodologies, we deliver a quality of macroeconomic analysis few other houses can match.

Centennial Asia Advisors is an independent research and advisory firm that works with governments, multilateral institutions, financial firms and leading MNCs.

Economic Policy and Strategic Advisors

FX & Rates

<ul style="list-style-type: square;">
<li>The pandemic is easing, raising hopes for the recovery to regain momentum as lockdowns come off. The government is willing to countenance more stimulus, but the measures are likely to be more targeted at sectors hit hard by the lockdowns. Furthermore, there is very limited fiscal headroom for sweeping fiscal relief so more indirect measures will feature in the new relief bill, if it even materialises in the first place.</li>
<li>The government intends to dip into the capital markets for another INR1.6tr in additional borrowing, on top of the INR12tr it is budgeting to finance the budget deficit. This will seriously test the bond market's ability to take in such a deluge of borrowings in the near-term.</li>
<li>The RBI could expand and extend its G-SAP (i.e. QE) policy moving into 3Q21. But yields will come under pressure from the widening yield differentials with the US as well as the incoming deluge of borrowings. In turn, the <a href="https://www.smartkarma.com/entities/inr" target="_blank" data-smartkarma-citation="entities:22832:1" rel="noopener">INR (USDINR CURNCY)</a>'s rally is likely to hit a wall in the near-term after clawing back most of the losses it sustained in May - it is the best performing currency this month after rising 2.2% from April.</li>
</ul>


The pandemic is easing, raising hopes for the recovery to regain momentum as lockdowns come off. The government is willing to countenance more stimulus, but the measures are likely to be more targeted at sectors hit hard by the lockdowns. Furthermore, there is very limited fiscal headroom for sweeping fiscal relief so more indirect measures will feature in the new relief bill, if it even materialises in the first place.
The government intends to dip into the capital markets for another INR1.6tr in additional borrowing, on top of the INR12tr it is budgeting to finance the budget deficit. This will seriously test the bond market's ability to take in such a deluge of borrowings in the near-term.
The RBI could expand and extend its G-SAP (i.e. QE) policy moving into 3Q21. But yields will come under pressure from the widening yield differentials with the US as well as the incoming deluge of borrowings. In turn, the INR (USDINR CURNCY)'s rally is likely to hit a wall in the near-term after clawing back most of the losses it sustained in May - it is the best performing currency this month after rising 2.2% from April.


India: Limited Upside To Rally In Rupee Moving Forward

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

With manufacturing output growing 5.8% YoY in Jan-Mar 2021 (4Q-FY2020/21), we estimate that real GDP grew 4.5% YoY that quarter -- far above the consensus of +1.2% YoY -- thus ensuring a contraction of -6% for FY2020/21 (much better than the official estimate of -8%). April 2021 saw a spectacular year-on-year rebound in the economy, with exports up 196% YoY, imports up 167% and steel output up 153% YoY that month. Much of the economy was locked down in May, as the Covid 2nd Wave hammered India -- with new daily cases peaking at 414,434 on 6 May 2021, but receding to 173,882 new cases on 28 May 2021.
After the May pause, however, the economy should accelerate through the rest of FY2021/22, benefitting from last year's structural economic reforms -- particularly the liberalization of the labour market, cuts in corporate tax rates, and the introduction of production-linked incentives to boost manufacturing. This year's partial lockdowns largely exempted exports, and allowed public transportation to continue, thereby reducing the supply bottlenecks that plagued the economy in 2020. Consequently, CPI inflation will likely remain in the RBI's inflation-target range, and moderate to 4% YoY by August. Despite high oil-driven WPI inflation, we expect the RBI to cut its policy rate by 25bp each in the next two quarters, further spurring the economic recovery. 
India's vaccination drive too ran into supply bottlenecks in May, which are now easing -- with more than 3 million vaccine doses being administered daily in recent days. A total of 209 million vaccine doses have been administered, but the pace of vaccination is likely to accelerate over the next 2 months as more vaccine manufacturers are licensed and the US allows large-scale imports of vaccine ingredients to enable the ramp-up of vaccine production. India is not immune to a third wave, but will be better-prepared for one were it to occur. Manufacturing, agriculture and non-travel-intensive services are still likely to ensure 11% real GDP growth in FY2021/22 relative to the depressed levels of last year. April and June will make up partly for the losses of May, but the pace is likely to accelerate in the next two quarters. The strong economic recovery will make valuations look reasonable as earnings too rebound strongly. We would recommend staying invested in India.

With manufacturing output growing 5.8% YoY in Jan-Mar 2021 (4Q-FY2020/21), we estimate that real GDP grew 4.5% YoY that quarter -- far above the consensus of +1.2% YoY -- thus ensuring a contraction of -6% for FY2020/21 (much better than the official estimate of -8%). April 2021 saw a spectacular year-on-year rebound in the economy, with exports up 196% YoY, imports up 167% and steel output up 153% YoY that month. Much of the economy was locked down in May, as the Covid 2nd Wave hammered India -- with new daily cases peaking at 414,434 on 6 May 2021, but receding to 173,882 new cases on 28 May 2021.
After the May pause, however, the economy should accelerate through the rest of FY2021/22, benefitting from last year's structural economic reforms -- particularly the liberalization of the labour market, cuts in corporate tax rates, and the introduction of production-linked incentives to boost manufacturing. This year's partial lockdowns largely exempted exports, and allowed public transportation to continue, thereby reducing the supply bottlenecks that plagued the economy in 2020. Consequently, CPI inflation will likely remain in the RBI's inflation-target range, and moderate to 4% YoY by August. Despite high oil-driven WPI inflation, we expect the RBI to cut its policy rate by 25bp each in the next two quarters, further spurring the economic recovery. 
India's vaccination drive too ran into supply bottlenecks in May, which are now easing -- with more than 3 million vaccine doses being administered daily in recent days. A total of 209 million vaccine doses have been administered, but the pace of vaccination is likely to accelerate over the next 2 months as more vaccine manufacturers are licensed and the US allows large-scale imports of vaccine ingredients to enable the ramp-up of vaccine production. India is not immune to a third wave, but will be better-prepared for one were it to occur. Manufacturing, agriculture and non-travel-intensive services are still likely to ensure 11% real GDP growth in FY2021/22 relative to the depressed levels of last year. April and June will make up partly for the losses of May, but the pace is likely to accelerate in the next two quarters. The strong economic recovery will make valuations look reasonable as earnings too rebound strongly. We would recommend staying invested in India.  

Receding 2nd Wave Will Allow Economic Acceleration, Spurred by Rate Cuts to Come

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

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

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India Treasury (INDIA GOVT)

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

India: Limited Upside To Rally In Rupee Moving Forward

The RBI is expected to extend and expand the G-SAP in the upcoming MPC meet, but its ability to keep yields under control will be seriously tested...

Nicholas Chia

Receding 2nd Wave Will Allow Economic Acceleration, Spurred by Rate Cuts to Come

Strong harvest to curb food inflation, allowing 50bp rate but by Oct21. The soaring March-April economy will re-accelerate with vaccine rollout...

Prasenjit K. Basu

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

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

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