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

The 2020 Monsoon Session of parliament will go down in history for ushering in modern India’s most transformative economic reforms. Farmers (hitherto obliged to sell their produce to a monopsonist within each state) are now free to sell to whoever they wish (including directly for export), and the famously inflexible labour market has been ingeniously freed up.Economic reforms that economists have salivated over, but which politicians considered too hot to handle, have now been delivered by the Modi government. The simplification of labour laws (with 44 laws cut to 4 simple codes), and particularly allowing employers to take employees on (renewable) fixed-term contracts, makes India's labour market as flexible as any in Southeast Asia. The removal of the dead hand of government from vital parts of the economy – with the associated opportunities for pelf they provided to politicians and bureaucrats – has naturally resulted in an avalanche of political criticism, as most policies are in India.But the benefits to the national economy are certain over the decades ahead. The flexible labour market will bolster investment in labour-intensive manufacturing, which (like Japan in the 1950s, Taiwan and South Korea in the 1960s, Malaysia and Thailand in the 1980s, China in the 1990s) will help draw labour from low-marginal-productivity work on farms to much higher-productivity jobs in manufacturing. And as workers are drawn away from farms, those that remain there will see some improvement in their productivity -- benefitting additionally from the elimination of the intermediaries between farms and retailers, which will boost the prices earned by farmers. Early evidence that the farm-sector reforms are working is the 32% YoY increase in tractor sales in the last quarter (July-September 2020). The reforms, coupled with the IBC (Insolvency &amp; Bankruptcy Code) and GST, will provide a significant fillip to medium-term economic growth. We are positive on Indian equities on a 12-18 month view.        <div>      </div>

The 2020 Monsoon Session of parliament will go down in history for ushering in modern India’s most transformative economic reforms. Farmers (hitherto obliged to sell their produce to a monopsonist within each state) are now free to sell to whoever they wish (including directly for export), and the famously inflexible labour market has been ingeniously freed up.Economic reforms that economists have salivated over, but which politicians considered too hot to handle, have now been delivered by the Modi government. The simplification of labour laws (with 44 laws cut to 4 simple codes), and particularly allowing employers to take employees on (renewable) fixed-term contracts, makes India's labour market as flexible as any in Southeast Asia. The removal of the dead hand of government from vital parts of the economy – with the associated opportunities for pelf they provided to politicians and bureaucrats – has naturally resulted in an avalanche of political criticism, as most policies are in India.But the benefits to the national economy are certain over the decades ahead. The flexible labour market will bolster investment in labour-intensive manufacturing, which (like Japan in the 1950s, Taiwan and South Korea in the 1960s, Malaysia and Thailand in the 1980s, China in the 1990s) will help draw labour from low-marginal-productivity work on farms to much higher-productivity jobs in manufacturing. And as workers are drawn away from farms, those that remain there will see some improvement in their productivity -- benefitting additionally from the elimination of the intermediaries between farms and retailers, which will boost the prices earned by farmers. Early evidence that the farm-sector reforms are working is the 32% YoY increase in tractor sales in the last quarter (July-September 2020). The reforms, coupled with the IBC (Insolvency &amp; Bankruptcy Code) and GST, will provide a significant fillip to medium-term economic growth. We are positive on Indian equities on a 12-18 month view.              

Modi's Blitz of Economic Reform Will Transform Farm Sector and Labour Market

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Cross Asset Strategy

<ul>
<li>TMI's text-mined India Lead Indicator has jumped to +1.5x STDEVs, highest reading since 11/2019; our indicator is equally comprised of macro components &amp; domestic corporate drivers</li>
<li>Just as the US and Europe are seeing a surge in COVID-19 cases, India has seen an encouraging -32% decline in the past month from a 7DMA new case count of 93K/day mid-September to the most recent reading of 63K/day; positive impact on mobility is already noticeable</li>
<li>Our RBI sentiment indicator surged to +1.6x STDEV as the central bank stated it will "look through" transitory inflationary supply shocks, pledging a prolonged accommodative policy stance while doubling down on open market operations and announcing new sector-specific TLTROs</li>
<li>While macro sentiment is the key catalyst, we also see an incipient recovery in corporate sentiment evidenced in positive news flow such as the sequential headcount increase at the likes of TCS, Infosys and Wipro</li>
<li>Our India Lead Indicator has been 80% correlated with the iShares MSCI India ETF with a slight lead in the T12M</li>
<li>At this point, our sentiment-based India indicators appear to be ahead of other Asian jurisdictions across most vectors</li>
</ul><div class="content-highlight">TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </div>


TMI's text-mined India Lead Indicator has jumped to +1.5x STDEVs, highest reading since 11/2019; our indicator is equally comprised of macro components &amp; domestic corporate drivers
Just as the US and Europe are seeing a surge in COVID-19 cases, India has seen an encouraging -32% decline in the past month from a 7DMA new case count of 93K/day mid-September to the most recent reading of 63K/day; positive impact on mobility is already noticeable
Our RBI sentiment indicator surged to +1.6x STDEV as the central bank stated it will "look through" transitory inflationary supply shocks, pledging a prolonged accommodative policy stance while doubling down on open market operations and announcing new sector-specific TLTROs
While macro sentiment is the key catalyst, we also see an incipient recovery in corporate sentiment evidenced in positive news flow such as the sequential headcount increase at the likes of TCS, Infosys and Wipro
Our India Lead Indicator has been 80% correlated with the iShares MSCI India ETF with a slight lead in the T12M
At this point, our sentiment-based India indicators appear to be ahead of other Asian jurisdictions across most vectors
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Indicators: India Indicators Rise On COVID-19 Trends, RBI Policy Shift and Corporate Optimism

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

*Strong Results, But Managed: HDFC Bank (HDFCB.IN) [HDFCB] reported FY 2Q21 results of INR 770.3 bn, which increased INR 77.6 bn (11.2%) linked quarter. On a core operating basis, results improved INR 84.6 bn (14.5%) to INR 668.6 bn over the period. Other income drove the results outperformance;*Credit Still Breaking Down Ex-Supreme Court Ruling: The Supreme Court of India, in a public interest litigation directed that accounts which were not declared NPL through August 31, 2020 shall not be declared as such until further notice. On an apples-to-apples basis, we find that HDFCB’s gross NPLs increased 4.3% linked quarter. Inclusive of NCOs of INR 184 bn, we calculate that net new NPLs actually increased INR 765 bn or 22.4% on an annualized basis; and*Reserve Cover Needs Improvement: While provisions cover NCOs by 2.4x, we would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues gives HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 680 bn or an entire quarter of core operating results.

*Strong Results, But Managed: HDFC Bank (HDFCB.IN) [HDFCB] reported FY 2Q21 results of INR 770.3 bn, which increased INR 77.6 bn (11.2%) linked quarter. On a core operating basis, results improved INR 84.6 bn (14.5%) to INR 668.6 bn over the period. Other income drove the results outperformance;*Credit Still Breaking Down Ex-Supreme Court Ruling: The Supreme Court of India, in a public interest litigation directed that accounts which were not declared NPL through August 31, 2020 shall not be declared as such until further notice. On an apples-to-apples basis, we find that HDFCB’s gross NPLs increased 4.3% linked quarter. Inclusive of NCOs of INR 184 bn, we calculate that net new NPLs actually increased INR 765 bn or 22.4% on an annualized basis; and*Reserve Cover Needs Improvement: While provisions cover NCOs by 2.4x, we would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues gives HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 680 bn or an entire quarter of core operating results.   

Thematic (Sector/Industry)

*A Market With Little Discipline: Too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. This has resulted in the creation of a giant vortex of liquidity which could be as large as USD 1 quadrillion;*Broken Credit Ratings Agency Model: In our view, the credit ratings agency model is permanently broken as waterfall risks in various rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate);  and*SEC Far From Being Aggressive With Enforcement: In reality, the fines paid by Kroll/DBRS are not even a drop in the bucket compared with the USD 1.5 bn and USD 864 mn fines paid by S&amp;P (MH) and Moody's (MCO.US), respectively, to settle similar charges associated with the GFC. Whether this reflects more of a lower level of violations or a much less aggressive SEC regulator can be debated. It will be interesting to see is whether these investigations are expanded to include 2018-19 deals which appear to have even greater conflicts - particularly under Biden administration.

*A Market With Little Discipline: Too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. This has resulted in the creation of a giant vortex of liquidity which could be as large as USD 1 quadrillion;*Broken Credit Ratings Agency Model: In our view, the credit ratings agency model is permanently broken as waterfall risks in various rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate);  and*SEC Far From Being Aggressive With Enforcement: In reality, the fines paid by Kroll/DBRS are not even a drop in the bucket compared with the USD 1.5 bn and USD 864 mn fines paid by S&amp;P (MH) and Moody's (MCO.US), respectively, to settle similar charges associated with the GFC. Whether this reflects more of a lower level of violations or a much less aggressive SEC regulator can be debated. It will be interesting to see is whether these investigations are expanded to include 2018-19 deals which appear to have even greater conflicts - particularly under Biden administration. 

*Capital Forbearance and Liquidity Moves: The Reserve Bank of India (RBI) announced several measures designed to further improve banking system liquidity and capital at its latest monetary policy meeting; and *Additional Measures: The RBI was kind enough to extend other programs as well: a) Real Time Gross Settlement System (RTGS), used for large value transactions, is to be made available 24 hours per day; extension of the 2018 co-origination scheme; and the granting of a certificate of authorization to all PSOs (both new and existing) on a perpetual basis.

*Capital Forbearance and Liquidity Moves: The Reserve Bank of India (RBI) announced several measures designed to further improve banking system liquidity and capital at its latest monetary policy meeting; and *Additional Measures: The RBI was kind enough to extend other programs as well: a) Real Time Gross Settlement System (RTGS), used for large value transactions, is to be made available 24 hours per day; extension of the 2018 co-origination scheme; and the granting of a certificate of authorization to all PSOs (both new and existing) on a perpetual basis. 

Reserve Bank of India – Greasing The Skid

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)

Modi's Blitz of Economic Reform Will Transform Farm Sector and Labour Market

Labour reforms allowing new workers to be employed on fixed-term contracts give employers enormous flexibility. Coupled with the liberalization of...

Prasenjit K. Basu

TMI Indicators: India Indicators Rise On COVID-19 Trends, RBI Policy Shift and Corporate Optimism

TMI's text-mined India Lead Indicator recently surged to a new 2020 high on notably improving COVID-19 trends, dramatic policy shift at the RBI,...

Elan Gore

HDFC Bank – Not A Great Quarter

HDFC Bank: Improved Bottom-line Clouded By Supreme Court Ruling On Credit Quality Calculations. Reserve Cover Lower Than On/Off Balance Sheet Risk...

Thomas J. Monaco

Ratings Agencies – Beyond Repair

*A Market With Little Discipline: Too many market participants have very little discipline, and to make matters worse, central banks have been all...

Thomas J. Monaco

Reserve Bank of India – Greasing The Skid

*Capital Forbearance and Liquidity Moves: The Reserve Bank of India (RBI) announced several measures designed to further improve banking system...

Thomas J. Monaco