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 has bucked the global trend by growing its total government spending by only 0.4% YoY in April-October 2020. But the economic recovery caused tax revenue to rise 16.9% YoY in October 2020, and the fiscal deficit should consequently decline steadily in the second half of the fiscal year, helping to crowd-in private investment. As supply disruptions ease, CPI inflation should edge below 6% YoY by January 2021, allowing a 50bp reduction in the policy rate to further kick-start a spectacular economic recovery in 2021 (calendar year) to about 15% real GDP growth. India's real GDP contracted 7.5% YoY in July-September 2020, but will likely need to be revised up because the key Services sectors (including public administration, defence, finance and professional services) were reported to have contracted more in July-September than in the "locked-down" quarter of April-June. On the demand side, government consumption spending declined a severe 22.2% YoY in real terms, private consumption declined 11.3% YoY, and investment spending fell 7.4% YoY, but real net exports added 3.5 percentage points to GDP. Notably, nominal exports of goods and services increased during the quarter (and yet the Services contribution to the output side was sharply negative, suggesting serious measurement errors in the latter). But the overall decline in government spending was a notable restraint on GDP during the quarter. Fiscal restraint has meant that India's total government spending (nominal) in April-October 2020 was up just 0.4% YoY. In October 2020, strong gross tax revenue (+16.9% YoY) enabled the fiscal deficit to decline 43% YoY. As the accelerating economy boosts tax revenues in the months ahead, the fiscal deficit will moderate steadily further, allowing some room for even this extraordinarily fiscally-conservative government to ease the reins on government spending. More importantly, as the supply disruptions from transportation bottlenecks ease, we expect CPI inflation to moderate to below 6% YoY by January 2021, allowing a 50bp reduction in policy rates by March 2021 -- thereby kick-starting a strong economic recovery to 8% YoY in Jan-Mar 2021, around 30% YoY in the next quarter and over 10% YoY in the rest of FY2021/22.

India has bucked the global trend by growing its total government spending by only 0.4% YoY in April-October 2020. But the economic recovery caused tax revenue to rise 16.9% YoY in October 2020, and the fiscal deficit should consequently decline steadily in the second half of the fiscal year, helping to crowd-in private investment. As supply disruptions ease, CPI inflation should edge below 6% YoY by January 2021, allowing a 50bp reduction in the policy rate to further kick-start a spectacular economic recovery in 2021 (calendar year) to about 15% real GDP growth. India's real GDP contracted 7.5% YoY in July-September 2020, but will likely need to be revised up because the key Services sectors (including public administration, defence, finance and professional services) were reported to have contracted more in July-September than in the "locked-down" quarter of April-June. On the demand side, government consumption spending declined a severe 22.2% YoY in real terms, private consumption declined 11.3% YoY, and investment spending fell 7.4% YoY, but real net exports added 3.5 percentage points to GDP. Notably, nominal exports of goods and services increased during the quarter (and yet the Services contribution to the output side was sharply negative, suggesting serious measurement errors in the latter). But the overall decline in government spending was a notable restraint on GDP during the quarter. Fiscal restraint has meant that India's total government spending (nominal) in April-October 2020 was up just 0.4% YoY. In October 2020, strong gross tax revenue (+16.9% YoY) enabled the fiscal deficit to decline 43% YoY. As the accelerating economy boosts tax revenues in the months ahead, the fiscal deficit will moderate steadily further, allowing some room for even this extraordinarily fiscally-conservative government to ease the reins on government spending. More importantly, as the supply disruptions from transportation bottlenecks ease, we expect CPI inflation to moderate to below 6% YoY by January 2021, allowing a 50bp reduction in policy rates by March 2021 -- thereby kick-starting a strong economic recovery to 8% YoY in Jan-Mar 2021, around 30% YoY in the next quarter and over 10% YoY in the rest of FY2021/22. 

Economic Recovery Is Gaining Momentum, but Monetary Stimulus Would Help

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

Equity Bottom-Up

*Lakshmi Vilas Bank Problems Appear Bigger Than DBS Expects: By our calculation and based on LVB’s FY 2Q21 results, the company would appear to be insolvent by the amount of INR 39 bn – nearly 56% greater than the DBS Bank India capital infusion; LVB loses money on an operating basis prior to loss provisions, as revenues (no clarity on what is recurring) of INR 15.4 bn are less than operating expenses of INR 16.0 bn – or by 3.7% at FY 2Q21; et al;  and  *Cram-down Highlights That LVB’s Stated Numbers May Be Wrong:  Prior to the amalgamation, INR 318.2 bn (USD 43 mn) LVB Basel III-compliant Tier 2 bonds (Series VIII, Series IX, and Series X) were written down under the direction of the RBI. To the best of our knowledge, this would appear to be the first time that a cram-down procedure was applied in Asia. As a result, no investor should take any investment in a troubled Indian financial institution for granted. Ultimately, this will make the financial sector more efficient – but calls the sanctity of their audited results into questions as well.

*Lakshmi Vilas Bank Problems Appear Bigger Than DBS Expects: By our calculation and based on LVB’s FY 2Q21 results, the company would appear to be insolvent by the amount of INR 39 bn – nearly 56% greater than the DBS Bank India capital infusion; LVB loses money on an operating basis prior to loss provisions, as revenues (no clarity on what is recurring) of INR 15.4 bn are less than operating expenses of INR 16.0 bn – or by 3.7% at FY 2Q21; et al;  and  *Cram-down Highlights That LVB’s Stated Numbers May Be Wrong:  Prior to the amalgamation, INR 318.2 bn (USD 43 mn) LVB Basel III-compliant Tier 2 bonds (Series VIII, Series IX, and Series X) were written down under the direction of the RBI. To the best of our knowledge, this would appear to be the first time that a cram-down procedure was applied in Asia. As a result, no investor should take any investment in a troubled Indian financial institution for granted. Ultimately, this will make the financial sector more efficient – but calls the sanctity of their audited results into questions as well. 

Deputy Chief Economist

Sharmila Whelan

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

If the performance of India’s stock market is anything to judge by the pandemic lasted just a month and the economic fallout of the March nationwide lockdown was negligible. The question is the stock market’s unbound euphoria justified? No. The immediate (and the worst of the) economic shock is behind and that is a relief but the medium-term fallout or so called scarring to the economy, the depths of which is yet the be revealed, warrants caution.

If the performance of India’s stock market is anything to judge by the pandemic lasted just a month and the economic fallout of the March nationwide lockdown was negligible. The question is the stock market’s unbound euphoria justified? No. The immediate (and the worst of the) economic shock is behind and that is a relief but the medium-term fallout or so called scarring to the economy, the depths of which is yet the be revealed, warrants caution.

Thematic (Sector/Industry)

* RBI Failure To Think Through Moratorium Leads To Continued Uncertainty for India: On September 3, 2020, the Supreme Court of India held a hearing on interest rate waivers for loans under moratorium granted by the Reserve Bank of India (RBI). On September 10th, the Supreme Court clarified: a) the matter under discussion is related to interest on interest payments and not on the interest payments themselves; and b) that banks should not classify loans as NPL for another two month period, if they were not classified NPLs on August 31st.; and   *Dissatisfied Borrowers: The Supreme Court has now disposed of the 'interest on interest waiver' related petitions where borrowers were satisfied with the interest on interest waiver measures implemented by the RBI and the financial sector. However, there remain other borrowers (ie. power companies) who aren’t satisfied and have proposed further modifications to the RBI’s restructuring scheme.

* RBI Failure To Think Through Moratorium Leads To Continued Uncertainty for India: On September 3, 2020, the Supreme Court of India held a hearing on interest rate waivers for loans under moratorium granted by the Reserve Bank of India (RBI). On September 10th, the Supreme Court clarified: a) the matter under discussion is related to interest on interest payments and not on the interest payments themselves; and b) that banks should not classify loans as NPL for another two month period, if they were not classified NPLs on August 31st.; and   *Dissatisfied Borrowers: The Supreme Court has now disposed of the 'interest on interest waiver' related petitions where borrowers were satisfied with the interest on interest waiver measures implemented by the RBI and the financial sector. However, there remain other borrowers (ie. power companies) who aren’t satisfied and have proposed further modifications to the RBI’s restructuring scheme. 

Reserve Bank of India – The Fun Never Stops

*Third Indian Bank Failure In 15 Months: For the third time in 15 months, the Reserve Bank of India (RBI) took over a failing regional bank - announcing that it would limit deposit withdrawals and replace the board of directors at Lakshm Vilas Bank (LVB.IN) due to a "serious deterioration" in its finances. After the failure of Punjab and Maharashtra Co-operative Bank and Yes Bank (YES.IN); and 12 consecutive quarters of posting losses it should come as no surprise that the RBI placed LVB under moratorium through December 16, 2020; and*Not Letting Cash Burn A Hole In Its Pocket: On Novenber 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. This transaction is riddled with problems and will certainly cost DBS far greater than its initial investment.

*Third Indian Bank Failure In 15 Months: For the third time in 15 months, the Reserve Bank of India (RBI) took over a failing regional bank - announcing that it would limit deposit withdrawals and replace the board of directors at Lakshm Vilas Bank (LVB.IN) due to a "serious deterioration" in its finances. After the failure of Punjab and Maharashtra Co-operative Bank and Yes Bank (YES.IN); and 12 consecutive quarters of posting losses it should come as no surprise that the RBI placed LVB under moratorium through December 16, 2020; and*Not Letting Cash Burn A Hole In Its Pocket: On Novenber 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. This transaction is riddled with problems and will certainly cost DBS far greater than its initial investment.  

India

iShares MSCI India ETF is an exchange-traded fund incorporated in the USA. The ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI India Index.

iShares MSCI India ETF (INDA US)

Economic Recovery Is Gaining Momentum, but Monetary Stimulus Would Help

Total govt spending rose just 0.4%YoY in Apr-Oct 2020. But in Oct20, tax revenue surged 17%YoY. The falling fiscal deficit will crowd in private...

Prasenjit K. Basu

DBS Group Holdings – The LVB Cram Down

DBS GROUP HOLDINGS: The LVB Cram-down Raises Significant Questions Over Potential Cost For DBS, Raises Significant Concerns Over Audited Financial...

Thomas J. Monaco

India - Market Gets Ahead of Itself

If the performance of India’s stock market is anything to judge by the pandemic lasted just a month and the economic fallout was negligible such....

Sharmila Whelan

Reserve Bank of India – The Fun Never Stops

RESERVE BANK OF INDIA: Certain Borrowers Are Dis-Satisfied With "Interest On Interest Waiver" And Proposed Additional Modifications To RBI...

Thomas J. Monaco

DBS Group Holdings – Dumb India Deal

DBS GROUP HOLDINGS: Transaction For Lakshmi Vilas Bank In India At INR 25 BN Is Way Too Pricey For Risk DBS Is Taking On. Price Will Ultimately Be...

Thomas J. Monaco