India

In this briefing:

1. Receding Political Gains to the Ruling Party, Possible Threat to the Markets
2. EM Equity Strategy: Cyclicals Leading, China Surging
3. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
4. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?
5. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF

1. Receding Political Gains to the Ruling Party, Possible Threat to the Markets

Post the downing of the Indian Air Force (IAF) MIG-21 by Pakistan over its territory and the capture and subsequent return of the pilot, the narrative which was strongly in favour of Narendra  Modi and the ruling Bharatiya Janata Party (BJP) rapidly spiralled downwards. Whether the Pakistan Air Force (PAF) entered Indian air space to deliberately attack Indian targets and was driven back, or it was a lure to ambush the IAF aircraft over Pakistani airspace, is not yet clear, but the stark acknowledgement that the IAF MIG-21 had been downed and the pilot captured, and  a video of his capture and  interrogation broadcasted on social media, were setbacks to the Indian government and its military. Although the Indian government claimed that a PAF F-16 was brought down (although some Indian defense commentators are stating that this is evidence of the downed PAF F-16), Pakistan is denying any loss of its aircraft.

If the market was banking on a decisive Modi victory in the 2019 national elections in the immediate aftermath of the IAF strike on Bagalkot that has been dissipated with the capture and return of the IAF pilot. Unless another such event arises (or is generated), the outcome of the national elections in India will be determined by political alliances and the socio-economic conditions of the electorate; national security concerns may play a secondary role

2. EM Equity Strategy: Cyclicals Leading, China Surging

Broadly speaking, RS for MSCI EM is currently exhibiting some mild deterioration vs. MSCI EAFE following four months of clear outperformance. Nonetheless, the MSCI EM index is bottoming and remains attractive from a price perspective.  In today’s report we offer a technical appraisal of major EM markets, and offer a host of technically attractivec bottoms-up stock ideas across the EM universe.

3. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal

4. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?

Global growth is expected to slow over the coming quarters, possibly years – and emerging market economies are certainly not immune from this. Nevertheless, within this diverse universe, the pace of deceleration will be uneven. Whilst some “open” EM economies are generally synchronized with growth dynamics in the rest of the world, others will be shielded by a combination of idiosyncratic forces – including renewed accommodative (monetary and fiscal) policies, cyclical recovery or upswing in domestic growth drivers and – for some – positive political developments and reform progress. Still, other EMs are less fortunate and a growth deceleration is likely to deepen in the near-term – held back by less policy flexibility, political uncertainty and various domestic or external shocks.

With 4Q18 GDP growth reports underway, we sifted through – and synthesized – various growth indicators to introduce a “Growth-Profile Framework” (GPF) to systematically evaluate – and rank – growth profiles in a data-driven, automated and standardized manner. The “GPF” not only takes into account GDP for the most recently-reported four quarters but also forward-looking forecasts and the latest economist revisions, which often take into account the latest data surprises and other material developments.

The observation universe is the “Emerging Markets-25” (EM-25) of large, investable EM countries most often found in benchmark indices such as MSCI EM and JPMorgan (GBI-EM and EMBI) indices. This opportunity set offers a breadth of diversity spanning across Asia, EMEA and LatAm and different stages of development. 

Highlights: 

• Introducing the “EM-25” Growth Profile Framework: This data-driven, automated and standardized model generates a ranking of the “EM-25” economies based on a composite of factors reflecting: 1/ The most recent GDP growth data (in relation to three look-back periods), 2/ Forward-looking consensus growth forecasts (in relation to the most recent four quarters of GDP) and 3/ Upgrades and downgrades to those forecasts.
• Andean condors soar while Asian elephants amble along: LatAm – specifically the Andean economies (plus Brazil) – currently stand out as having the most attractive growth profiles among the EM-25. They are helped by a combination of – largely idiosyncratic – factors ranging from newfound reform optimism (Brazil), improving domestic confidence (Colombia), pent-up domestic demand (Peru) and stabilizing appetite for key commodities (Chile). This contrasts with export-oriented Asian manufacturers that dominate the bottom rankings. Elsewhere, the legacy of past macroeconomic policy choices – both painfully orthodox (Argentina) and otherwise (Turkey, Venezuela, Pakistan) – are taking their unique toll on certain other economies.
• Does growth matter for investment strategy? Yes…: Simplistically speaking, economies with exemplary growth profiles are viable candidates for long or overweight positions in equity markets and external debt. Strong growth is often associated with stronger corporate earnings potential as well as lower debt-to-GDP levels, respectively. Growth implications for FX and local debt are more ambiguous, but to the extent that a robust growth outlook guides central banks to tighten policy or lifts the government’s fiscal revenues over time, then this may also be positive for currencies and rates, respectively.

• …But it’s complicated: However, strong growth can detract asset performance if it is the result of unsustainable policies (e.g. overly loose fiscal or monetary actions) or if it leads to overheating conditions (e.g. runaway inflation or a wider current account deficit). An attractive growth profile, as with all data sets, needs to be judged against its context. Although high and improving growth is an end-goal for many policymakers, the road to strong – and sustainable – growth is far more important for its longevity (and for risk assets over the medium-term). For instance: Are growth prospects improving due to rising productivity (as it might from structural reform)? Or rather from overly-stimulative policies that risk fanning inflation or widening the current account deficit? To what extent do officials have the policy flexibility to stoke growth, smoothen downside growth risks or stave off a recession? We touch upon these questions in the individual country sections below.

• While the narrative is almost always more important than the number itself, this GPF framework nevertheless offers a valuable screening tool that systematically evaluates growth profiles – on a stand-alone and relative basis – across the “EM-25” universe.

5. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF

Last morning the listed brake supplier, Wabco Holdings (WBC US) confirmed that it is in takeover talks with one of the leading auto parts suppliers in Germany, ZF Friedrichshafen AG. Following the news of being possibly bought by a private company, WABCO’s stock surged almost 10% during the day, reaching USD130.5 by the day’s close.  This positive market reaction for WABCO was purely based on its confirmation about having preliminary takeover discussions with its rival company, ZF. There were no further details released on the possible deal price or about the plans that either company has after the takeover. Further, ZF in a news report stated that no decision has been taken yet and that it was the preliminary discussions that were being done. However, we do note the following:

• ZF is known to have made such strategic acquisitions in aiding the long-term development of the company. A similar strategic move was made by ZF back in 2015, when it took over TRW Automotive Holding to expand its exposure to sensors and electronic components.
• In June last year, ZF stated in a news report that it is not prioritising interest in brake suppliers, as its focus is to pursue investments in developing components to support next generation technologies and reported its plan to further invest more than EUR12bn into e-mobility and the autonomous driving field. This could indicate that WABCO takeover discussions may involve reasonable price discipline from ZF, and we would note that ZF had previously desired to acquire Wabco for about €6-8bn. However, we believe that the buyout does look attractive for both companies, especially for ZF, given the possible synergistic effects that could support ZF’s next gen technologies.
• In the last go around, ZF had just completed its acquisition of TRW and the balance sheet made a further large acquisition difficult. Now, much of the additional debt from the TRW has been digested and although levering up again could place considerable financial pressure on ZF in the short term, the company’s history makes up believe that it has the capability to handle any such pressure once synergies kick-in and restore its balance sheet in short order.

In this briefing:

1. EM Equity Strategy: Cyclicals Leading, China Surging
2. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
3. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?
4. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF
5. Memory Chips and the Elasticity Myth

1. EM Equity Strategy: Cyclicals Leading, China Surging

Broadly speaking, RS for MSCI EM is currently exhibiting some mild deterioration vs. MSCI EAFE following four months of clear outperformance. Nonetheless, the MSCI EM index is bottoming and remains attractive from a price perspective.  In today’s report we offer a technical appraisal of major EM markets, and offer a host of technically attractivec bottoms-up stock ideas across the EM universe.

2. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal

3. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?

Global growth is expected to slow over the coming quarters, possibly years – and emerging market economies are certainly not immune from this. Nevertheless, within this diverse universe, the pace of deceleration will be uneven. Whilst some “open” EM economies are generally synchronized with growth dynamics in the rest of the world, others will be shielded by a combination of idiosyncratic forces – including renewed accommodative (monetary and fiscal) policies, cyclical recovery or upswing in domestic growth drivers and – for some – positive political developments and reform progress. Still, other EMs are less fortunate and a growth deceleration is likely to deepen in the near-term – held back by less policy flexibility, political uncertainty and various domestic or external shocks.

With 4Q18 GDP growth reports underway, we sifted through – and synthesized – various growth indicators to introduce a “Growth-Profile Framework” (GPF) to systematically evaluate – and rank – growth profiles in a data-driven, automated and standardized manner. The “GPF” not only takes into account GDP for the most recently-reported four quarters but also forward-looking forecasts and the latest economist revisions, which often take into account the latest data surprises and other material developments.

The observation universe is the “Emerging Markets-25” (EM-25) of large, investable EM countries most often found in benchmark indices such as MSCI EM and JPMorgan (GBI-EM and EMBI) indices. This opportunity set offers a breadth of diversity spanning across Asia, EMEA and LatAm and different stages of development. 

Highlights: 

• Introducing the “EM-25” Growth Profile Framework: This data-driven, automated and standardized model generates a ranking of the “EM-25” economies based on a composite of factors reflecting: 1/ The most recent GDP growth data (in relation to three look-back periods), 2/ Forward-looking consensus growth forecasts (in relation to the most recent four quarters of GDP) and 3/ Upgrades and downgrades to those forecasts.
• Andean condors soar while Asian elephants amble along: LatAm – specifically the Andean economies (plus Brazil) – currently stand out as having the most attractive growth profiles among the EM-25. They are helped by a combination of – largely idiosyncratic – factors ranging from newfound reform optimism (Brazil), improving domestic confidence (Colombia), pent-up domestic demand (Peru) and stabilizing appetite for key commodities (Chile). This contrasts with export-oriented Asian manufacturers that dominate the bottom rankings. Elsewhere, the legacy of past macroeconomic policy choices – both painfully orthodox (Argentina) and otherwise (Turkey, Venezuela, Pakistan) – are taking their unique toll on certain other economies.
• Does growth matter for investment strategy? Yes…: Simplistically speaking, economies with exemplary growth profiles are viable candidates for long or overweight positions in equity markets and external debt. Strong growth is often associated with stronger corporate earnings potential as well as lower debt-to-GDP levels, respectively. Growth implications for FX and local debt are more ambiguous, but to the extent that a robust growth outlook guides central banks to tighten policy or lifts the government’s fiscal revenues over time, then this may also be positive for currencies and rates, respectively.

• …But it’s complicated: However, strong growth can detract asset performance if it is the result of unsustainable policies (e.g. overly loose fiscal or monetary actions) or if it leads to overheating conditions (e.g. runaway inflation or a wider current account deficit). An attractive growth profile, as with all data sets, needs to be judged against its context. Although high and improving growth is an end-goal for many policymakers, the road to strong – and sustainable – growth is far more important for its longevity (and for risk assets over the medium-term). For instance: Are growth prospects improving due to rising productivity (as it might from structural reform)? Or rather from overly-stimulative policies that risk fanning inflation or widening the current account deficit? To what extent do officials have the policy flexibility to stoke growth, smoothen downside growth risks or stave off a recession? We touch upon these questions in the individual country sections below.

• While the narrative is almost always more important than the number itself, this GPF framework nevertheless offers a valuable screening tool that systematically evaluates growth profiles – on a stand-alone and relative basis – across the “EM-25” universe.

4. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF

Last morning the listed brake supplier, Wabco Holdings (WBC US) confirmed that it is in takeover talks with one of the leading auto parts suppliers in Germany, ZF Friedrichshafen AG. Following the news of being possibly bought by a private company, WABCO’s stock surged almost 10% during the day, reaching USD130.5 by the day’s close.  This positive market reaction for WABCO was purely based on its confirmation about having preliminary takeover discussions with its rival company, ZF. There were no further details released on the possible deal price or about the plans that either company has after the takeover. Further, ZF in a news report stated that no decision has been taken yet and that it was the preliminary discussions that were being done. However, we do note the following:

• ZF is known to have made such strategic acquisitions in aiding the long-term development of the company. A similar strategic move was made by ZF back in 2015, when it took over TRW Automotive Holding to expand its exposure to sensors and electronic components.
• In June last year, ZF stated in a news report that it is not prioritising interest in brake suppliers, as its focus is to pursue investments in developing components to support next generation technologies and reported its plan to further invest more than EUR12bn into e-mobility and the autonomous driving field. This could indicate that WABCO takeover discussions may involve reasonable price discipline from ZF, and we would note that ZF had previously desired to acquire Wabco for about €6-8bn. However, we believe that the buyout does look attractive for both companies, especially for ZF, given the possible synergistic effects that could support ZF’s next gen technologies.
• In the last go around, ZF had just completed its acquisition of TRW and the balance sheet made a further large acquisition difficult. Now, much of the additional debt from the TRW has been digested and although levering up again could place considerable financial pressure on ZF in the short term, the company’s history makes up believe that it has the capability to handle any such pressure once synergies kick-in and restore its balance sheet in short order.

5. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

In this briefing:

1. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
2. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?
3. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF
4. Memory Chips and the Elasticity Myth
5. Post Card from Bengaluru (India)

1. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal

2. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?

Global growth is expected to slow over the coming quarters, possibly years – and emerging market economies are certainly not immune from this. Nevertheless, within this diverse universe, the pace of deceleration will be uneven. Whilst some “open” EM economies are generally synchronized with growth dynamics in the rest of the world, others will be shielded by a combination of idiosyncratic forces – including renewed accommodative (monetary and fiscal) policies, cyclical recovery or upswing in domestic growth drivers and – for some – positive political developments and reform progress. Still, other EMs are less fortunate and a growth deceleration is likely to deepen in the near-term – held back by less policy flexibility, political uncertainty and various domestic or external shocks.

With 4Q18 GDP growth reports underway, we sifted through – and synthesized – various growth indicators to introduce a “Growth-Profile Framework” (GPF) to systematically evaluate – and rank – growth profiles in a data-driven, automated and standardized manner. The “GPF” not only takes into account GDP for the most recently-reported four quarters but also forward-looking forecasts and the latest economist revisions, which often take into account the latest data surprises and other material developments.

The observation universe is the “Emerging Markets-25” (EM-25) of large, investable EM countries most often found in benchmark indices such as MSCI EM and JPMorgan (GBI-EM and EMBI) indices. This opportunity set offers a breadth of diversity spanning across Asia, EMEA and LatAm and different stages of development. 

Highlights: 

• Introducing the “EM-25” Growth Profile Framework: This data-driven, automated and standardized model generates a ranking of the “EM-25” economies based on a composite of factors reflecting: 1/ The most recent GDP growth data (in relation to three look-back periods), 2/ Forward-looking consensus growth forecasts (in relation to the most recent four quarters of GDP) and 3/ Upgrades and downgrades to those forecasts.
• Andean condors soar while Asian elephants amble along: LatAm – specifically the Andean economies (plus Brazil) – currently stand out as having the most attractive growth profiles among the EM-25. They are helped by a combination of – largely idiosyncratic – factors ranging from newfound reform optimism (Brazil), improving domestic confidence (Colombia), pent-up domestic demand (Peru) and stabilizing appetite for key commodities (Chile). This contrasts with export-oriented Asian manufacturers that dominate the bottom rankings. Elsewhere, the legacy of past macroeconomic policy choices – both painfully orthodox (Argentina) and otherwise (Turkey, Venezuela, Pakistan) – are taking their unique toll on certain other economies.
• Does growth matter for investment strategy? Yes…: Simplistically speaking, economies with exemplary growth profiles are viable candidates for long or overweight positions in equity markets and external debt. Strong growth is often associated with stronger corporate earnings potential as well as lower debt-to-GDP levels, respectively. Growth implications for FX and local debt are more ambiguous, but to the extent that a robust growth outlook guides central banks to tighten policy or lifts the government’s fiscal revenues over time, then this may also be positive for currencies and rates, respectively.

• …But it’s complicated: However, strong growth can detract asset performance if it is the result of unsustainable policies (e.g. overly loose fiscal or monetary actions) or if it leads to overheating conditions (e.g. runaway inflation or a wider current account deficit). An attractive growth profile, as with all data sets, needs to be judged against its context. Although high and improving growth is an end-goal for many policymakers, the road to strong – and sustainable – growth is far more important for its longevity (and for risk assets over the medium-term). For instance: Are growth prospects improving due to rising productivity (as it might from structural reform)? Or rather from overly-stimulative policies that risk fanning inflation or widening the current account deficit? To what extent do officials have the policy flexibility to stoke growth, smoothen downside growth risks or stave off a recession? We touch upon these questions in the individual country sections below.

• While the narrative is almost always more important than the number itself, this GPF framework nevertheless offers a valuable screening tool that systematically evaluates growth profiles – on a stand-alone and relative basis – across the “EM-25” universe.

3. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF

Last morning the listed brake supplier, Wabco Holdings (WBC US) confirmed that it is in takeover talks with one of the leading auto parts suppliers in Germany, ZF Friedrichshafen AG. Following the news of being possibly bought by a private company, WABCO’s stock surged almost 10% during the day, reaching USD130.5 by the day’s close.  This positive market reaction for WABCO was purely based on its confirmation about having preliminary takeover discussions with its rival company, ZF. There were no further details released on the possible deal price or about the plans that either company has after the takeover. Further, ZF in a news report stated that no decision has been taken yet and that it was the preliminary discussions that were being done. However, we do note the following:

• ZF is known to have made such strategic acquisitions in aiding the long-term development of the company. A similar strategic move was made by ZF back in 2015, when it took over TRW Automotive Holding to expand its exposure to sensors and electronic components.
• In June last year, ZF stated in a news report that it is not prioritising interest in brake suppliers, as its focus is to pursue investments in developing components to support next generation technologies and reported its plan to further invest more than EUR12bn into e-mobility and the autonomous driving field. This could indicate that WABCO takeover discussions may involve reasonable price discipline from ZF, and we would note that ZF had previously desired to acquire Wabco for about €6-8bn. However, we believe that the buyout does look attractive for both companies, especially for ZF, given the possible synergistic effects that could support ZF’s next gen technologies.
• In the last go around, ZF had just completed its acquisition of TRW and the balance sheet made a further large acquisition difficult. Now, much of the additional debt from the TRW has been digested and although levering up again could place considerable financial pressure on ZF in the short term, the company’s history makes up believe that it has the capability to handle any such pressure once synergies kick-in and restore its balance sheet in short order.

4. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

5. Post Card from Bengaluru (India)

With our Post Card Series, our aim is to bring on-ground realities & perspectives from cities across India. Our meetings are specifically set up with Small and Medium Scale Enterprises to understand the structural changes happening in their Industry. In this visit to Bangalore, we focus on the real estate sector and developer financing issues. In this Insight, we bring you highlights of our interactions with local entrepreneurs, IT Professionals, real estate brokers and developers to understand the state of consumption in the city, the primary drivers impacting real estate demand, and the current funding scenario for real estate developers.  

In this briefing:

1. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?
2. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF
3. Memory Chips and the Elasticity Myth
4. Post Card from Bengaluru (India)
5. Dhanlaxmi Bank- Free from the PCA Stranglehold

1. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?

Global growth is expected to slow over the coming quarters, possibly years – and emerging market economies are certainly not immune from this. Nevertheless, within this diverse universe, the pace of deceleration will be uneven. Whilst some “open” EM economies are generally synchronized with growth dynamics in the rest of the world, others will be shielded by a combination of idiosyncratic forces – including renewed accommodative (monetary and fiscal) policies, cyclical recovery or upswing in domestic growth drivers and – for some – positive political developments and reform progress. Still, other EMs are less fortunate and a growth deceleration is likely to deepen in the near-term – held back by less policy flexibility, political uncertainty and various domestic or external shocks.

With 4Q18 GDP growth reports underway, we sifted through – and synthesized – various growth indicators to introduce a “Growth-Profile Framework” (GPF) to systematically evaluate – and rank – growth profiles in a data-driven, automated and standardized manner. The “GPF” not only takes into account GDP for the most recently-reported four quarters but also forward-looking forecasts and the latest economist revisions, which often take into account the latest data surprises and other material developments.

The observation universe is the “Emerging Markets-25” (EM-25) of large, investable EM countries most often found in benchmark indices such as MSCI EM and JPMorgan (GBI-EM and EMBI) indices. This opportunity set offers a breadth of diversity spanning across Asia, EMEA and LatAm and different stages of development. 

Highlights: 

• Introducing the “EM-25” Growth Profile Framework: This data-driven, automated and standardized model generates a ranking of the “EM-25” economies based on a composite of factors reflecting: 1/ The most recent GDP growth data (in relation to three look-back periods), 2/ Forward-looking consensus growth forecasts (in relation to the most recent four quarters of GDP) and 3/ Upgrades and downgrades to those forecasts.
• Andean condors soar while Asian elephants amble along: LatAm – specifically the Andean economies (plus Brazil) – currently stand out as having the most attractive growth profiles among the EM-25. They are helped by a combination of – largely idiosyncratic – factors ranging from newfound reform optimism (Brazil), improving domestic confidence (Colombia), pent-up domestic demand (Peru) and stabilizing appetite for key commodities (Chile). This contrasts with export-oriented Asian manufacturers that dominate the bottom rankings. Elsewhere, the legacy of past macroeconomic policy choices – both painfully orthodox (Argentina) and otherwise (Turkey, Venezuela, Pakistan) – are taking their unique toll on certain other economies.
• Does growth matter for investment strategy? Yes…: Simplistically speaking, economies with exemplary growth profiles are viable candidates for long or overweight positions in equity markets and external debt. Strong growth is often associated with stronger corporate earnings potential as well as lower debt-to-GDP levels, respectively. Growth implications for FX and local debt are more ambiguous, but to the extent that a robust growth outlook guides central banks to tighten policy or lifts the government’s fiscal revenues over time, then this may also be positive for currencies and rates, respectively.

• …But it’s complicated: However, strong growth can detract asset performance if it is the result of unsustainable policies (e.g. overly loose fiscal or monetary actions) or if it leads to overheating conditions (e.g. runaway inflation or a wider current account deficit). An attractive growth profile, as with all data sets, needs to be judged against its context. Although high and improving growth is an end-goal for many policymakers, the road to strong – and sustainable – growth is far more important for its longevity (and for risk assets over the medium-term). For instance: Are growth prospects improving due to rising productivity (as it might from structural reform)? Or rather from overly-stimulative policies that risk fanning inflation or widening the current account deficit? To what extent do officials have the policy flexibility to stoke growth, smoothen downside growth risks or stave off a recession? We touch upon these questions in the individual country sections below.

• While the narrative is almost always more important than the number itself, this GPF framework nevertheless offers a valuable screening tool that systematically evaluates growth profiles – on a stand-alone and relative basis – across the “EM-25” universe.

2. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF

Last morning the listed brake supplier, Wabco Holdings (WBC US) confirmed that it is in takeover talks with one of the leading auto parts suppliers in Germany, ZF Friedrichshafen AG. Following the news of being possibly bought by a private company, WABCO’s stock surged almost 10% during the day, reaching USD130.5 by the day’s close.  This positive market reaction for WABCO was purely based on its confirmation about having preliminary takeover discussions with its rival company, ZF. There were no further details released on the possible deal price or about the plans that either company has after the takeover. Further, ZF in a news report stated that no decision has been taken yet and that it was the preliminary discussions that were being done. However, we do note the following:

• ZF is known to have made such strategic acquisitions in aiding the long-term development of the company. A similar strategic move was made by ZF back in 2015, when it took over TRW Automotive Holding to expand its exposure to sensors and electronic components.
• In June last year, ZF stated in a news report that it is not prioritising interest in brake suppliers, as its focus is to pursue investments in developing components to support next generation technologies and reported its plan to further invest more than EUR12bn into e-mobility and the autonomous driving field. This could indicate that WABCO takeover discussions may involve reasonable price discipline from ZF, and we would note that ZF had previously desired to acquire Wabco for about €6-8bn. However, we believe that the buyout does look attractive for both companies, especially for ZF, given the possible synergistic effects that could support ZF’s next gen technologies.
• In the last go around, ZF had just completed its acquisition of TRW and the balance sheet made a further large acquisition difficult. Now, much of the additional debt from the TRW has been digested and although levering up again could place considerable financial pressure on ZF in the short term, the company’s history makes up believe that it has the capability to handle any such pressure once synergies kick-in and restore its balance sheet in short order.

3. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

4. Post Card from Bengaluru (India)

With our Post Card Series, our aim is to bring on-ground realities & perspectives from cities across India. Our meetings are specifically set up with Small and Medium Scale Enterprises to understand the structural changes happening in their Industry. In this visit to Bangalore, we focus on the real estate sector and developer financing issues. In this Insight, we bring you highlights of our interactions with local entrepreneurs, IT Professionals, real estate brokers and developers to understand the state of consumption in the city, the primary drivers impacting real estate demand, and the current funding scenario for real estate developers.  

5. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

In this briefing:

1. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF
2. Memory Chips and the Elasticity Myth
3. Post Card from Bengaluru (India)
4. Dhanlaxmi Bank- Free from the PCA Stranglehold
5. Coromandel International: Doing the Fieldwork Before the Harvest.

1. WABCO Confirms Being a Takeover Target of The Private German Auto Parts Maker, ZF

Last morning the listed brake supplier, Wabco Holdings (WBC US) confirmed that it is in takeover talks with one of the leading auto parts suppliers in Germany, ZF Friedrichshafen AG. Following the news of being possibly bought by a private company, WABCO’s stock surged almost 10% during the day, reaching USD130.5 by the day’s close.  This positive market reaction for WABCO was purely based on its confirmation about having preliminary takeover discussions with its rival company, ZF. There were no further details released on the possible deal price or about the plans that either company has after the takeover. Further, ZF in a news report stated that no decision has been taken yet and that it was the preliminary discussions that were being done. However, we do note the following:

• ZF is known to have made such strategic acquisitions in aiding the long-term development of the company. A similar strategic move was made by ZF back in 2015, when it took over TRW Automotive Holding to expand its exposure to sensors and electronic components.
• In June last year, ZF stated in a news report that it is not prioritising interest in brake suppliers, as its focus is to pursue investments in developing components to support next generation technologies and reported its plan to further invest more than EUR12bn into e-mobility and the autonomous driving field. This could indicate that WABCO takeover discussions may involve reasonable price discipline from ZF, and we would note that ZF had previously desired to acquire Wabco for about €6-8bn. However, we believe that the buyout does look attractive for both companies, especially for ZF, given the possible synergistic effects that could support ZF’s next gen technologies.
• In the last go around, ZF had just completed its acquisition of TRW and the balance sheet made a further large acquisition difficult. Now, much of the additional debt from the TRW has been digested and although levering up again could place considerable financial pressure on ZF in the short term, the company’s history makes up believe that it has the capability to handle any such pressure once synergies kick-in and restore its balance sheet in short order.

2. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

3. Post Card from Bengaluru (India)

With our Post Card Series, our aim is to bring on-ground realities & perspectives from cities across India. Our meetings are specifically set up with Small and Medium Scale Enterprises to understand the structural changes happening in their Industry. In this visit to Bangalore, we focus on the real estate sector and developer financing issues. In this Insight, we bring you highlights of our interactions with local entrepreneurs, IT Professionals, real estate brokers and developers to understand the state of consumption in the city, the primary drivers impacting real estate demand, and the current funding scenario for real estate developers.  

4. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

5. Coromandel International: Doing the Fieldwork Before the Harvest.

Coromandel International (CRIN IN) is an agri-solutions company that is the 5^th largest Agro-chemical company in the country. It is India’s largest private sector Phosphatic fertilizer company, India’s largest Single Super Phosphate (SSP) company, and India’s largest organic manure company. It is India’s fourth largest agro-chemical manufacturer and has an R&D base to create and refine its product offerings as well as a retail chain with over 800 stores to act as a one-stop-solution for farmers.

Key Growth Drivers:

• Strong Agri growth levers are driven by population growth, governmental policies, Indian soil composition, and nutrient deficiency. 
• Crop Protection segment has a growing export market as well as expiring agro-chemical patents present new market opportunities.
• Branding as well as a growing retail chain fuel growth in the domestic markets. 

Valuation:

Earnings Per Share is 22.57 in FY 17-18, 24.75 in FY 18-19E and 29 in FY 19-20E. P/E ratio is 23.33 in FY 17-18, 21 in FY 18-19E and 20.5 in FY 19-20E. EV/EBITDA is 13.69 in FY 17-18, 14.38 in FY 18-19E and 15.09 in FY 19-20E. The company is fairly valued given a high growth outlook, improving efficiencies and future market potential.

In this briefing:

1. Memory Chips and the Elasticity Myth
2. Post Card from Bengaluru (India)
3. Dhanlaxmi Bank- Free from the PCA Stranglehold
4. Coromandel International: Doing the Fieldwork Before the Harvest.
5. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

1. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

2. Post Card from Bengaluru (India)

With our Post Card Series, our aim is to bring on-ground realities & perspectives from cities across India. Our meetings are specifically set up with Small and Medium Scale Enterprises to understand the structural changes happening in their Industry. In this visit to Bangalore, we focus on the real estate sector and developer financing issues. In this Insight, we bring you highlights of our interactions with local entrepreneurs, IT Professionals, real estate brokers and developers to understand the state of consumption in the city, the primary drivers impacting real estate demand, and the current funding scenario for real estate developers.  

3. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

4. Coromandel International: Doing the Fieldwork Before the Harvest.

Coromandel International (CRIN IN) is an agri-solutions company that is the 5^th largest Agro-chemical company in the country. It is India’s largest private sector Phosphatic fertilizer company, India’s largest Single Super Phosphate (SSP) company, and India’s largest organic manure company. It is India’s fourth largest agro-chemical manufacturer and has an R&D base to create and refine its product offerings as well as a retail chain with over 800 stores to act as a one-stop-solution for farmers.

Key Growth Drivers:

• Strong Agri growth levers are driven by population growth, governmental policies, Indian soil composition, and nutrient deficiency. 
• Crop Protection segment has a growing export market as well as expiring agro-chemical patents present new market opportunities.
• Branding as well as a growing retail chain fuel growth in the domestic markets. 

Valuation:

Earnings Per Share is 22.57 in FY 17-18, 24.75 in FY 18-19E and 29 in FY 19-20E. P/E ratio is 23.33 in FY 17-18, 21 in FY 18-19E and 20.5 in FY 19-20E. EV/EBITDA is 13.69 in FY 17-18, 14.38 in FY 18-19E and 15.09 in FY 19-20E. The company is fairly valued given a high growth outlook, improving efficiencies and future market potential.

5. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

In this briefing:

1. Post Card from Bengaluru (India)
2. Dhanlaxmi Bank- Free from the PCA Stranglehold
3. Coromandel International: Doing the Fieldwork Before the Harvest.
4. India’s Military Strikes on Pakistan: No War in the Offing from Either Side
5. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

1. Post Card from Bengaluru (India)

With our Post Card Series, our aim is to bring on-ground realities & perspectives from cities across India. Our meetings are specifically set up with Small and Medium Scale Enterprises to understand the structural changes happening in their Industry. In this visit to Bangalore, we focus on the real estate sector and developer financing issues. In this Insight, we bring you highlights of our interactions with local entrepreneurs, IT Professionals, real estate brokers and developers to understand the state of consumption in the city, the primary drivers impacting real estate demand, and the current funding scenario for real estate developers.  

2. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

3. Coromandel International: Doing the Fieldwork Before the Harvest.

Coromandel International (CRIN IN) is an agri-solutions company that is the 5^th largest Agro-chemical company in the country. It is India’s largest private sector Phosphatic fertilizer company, India’s largest Single Super Phosphate (SSP) company, and India’s largest organic manure company. It is India’s fourth largest agro-chemical manufacturer and has an R&D base to create and refine its product offerings as well as a retail chain with over 800 stores to act as a one-stop-solution for farmers.

Key Growth Drivers:

• Strong Agri growth levers are driven by population growth, governmental policies, Indian soil composition, and nutrient deficiency. 
• Crop Protection segment has a growing export market as well as expiring agro-chemical patents present new market opportunities.
• Branding as well as a growing retail chain fuel growth in the domestic markets. 

Valuation:

Earnings Per Share is 22.57 in FY 17-18, 24.75 in FY 18-19E and 29 in FY 19-20E. P/E ratio is 23.33 in FY 17-18, 21 in FY 18-19E and 20.5 in FY 19-20E. EV/EBITDA is 13.69 in FY 17-18, 14.38 in FY 18-19E and 15.09 in FY 19-20E. The company is fairly valued given a high growth outlook, improving efficiencies and future market potential.

4. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

5. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

• Volatility set to rise as Thailand, Indonesia and India all Face ElectionsRussia: Michael Calvey, a US citizen and one of Russia’s most prominent foreign investors, has been detained.
• Indonesia: Incumbent President and his challenger from the military are trying to outdo each other in spending largesse targeting rural poor ahead of the May election.
• South Africa: Recent inflation readings have been the lowest in a long time on lower fuel expenses. Expected to stay low.

In this briefing:

1. Dhanlaxmi Bank- Free from the PCA Stranglehold
2. Coromandel International: Doing the Fieldwork Before the Harvest.
3. India’s Military Strikes on Pakistan: No War in the Offing from Either Side
4. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand
5. India: Retail SIP Inflows Show Sharp Slowdown

1. Dhanlaxmi Bank- Free from the PCA Stranglehold

Dhanlaxmi Bank (DHLBK IN) share price has surged by 10% today on the back of RBI move to take it out of Prompt Corrective Action (PCA) following improvement in its financial ratios. We have mentioned in our earlier reports (please click here, here and here) about the helplessness of the bank as it couldn’t lend due to restrictions from RBI.

Now as the grip is loosened, Dhanlaxmi can resume lending activities and improve its financial ratios without adding any new capital in the near term.

We analyze the implications post PCA through this report.

2. Coromandel International: Doing the Fieldwork Before the Harvest.

Coromandel International (CRIN IN) is an agri-solutions company that is the 5^th largest Agro-chemical company in the country. It is India’s largest private sector Phosphatic fertilizer company, India’s largest Single Super Phosphate (SSP) company, and India’s largest organic manure company. It is India’s fourth largest agro-chemical manufacturer and has an R&D base to create and refine its product offerings as well as a retail chain with over 800 stores to act as a one-stop-solution for farmers.

Key Growth Drivers:

• Strong Agri growth levers are driven by population growth, governmental policies, Indian soil composition, and nutrient deficiency. 
• Crop Protection segment has a growing export market as well as expiring agro-chemical patents present new market opportunities.
• Branding as well as a growing retail chain fuel growth in the domestic markets. 

Valuation:

Earnings Per Share is 22.57 in FY 17-18, 24.75 in FY 18-19E and 29 in FY 19-20E. P/E ratio is 23.33 in FY 17-18, 21 in FY 18-19E and 20.5 in FY 19-20E. EV/EBITDA is 13.69 in FY 17-18, 14.38 in FY 18-19E and 15.09 in FY 19-20E. The company is fairly valued given a high growth outlook, improving efficiencies and future market potential.

3. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

4. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

• Volatility set to rise as Thailand, Indonesia and India all Face ElectionsRussia: Michael Calvey, a US citizen and one of Russia’s most prominent foreign investors, has been detained.
• Indonesia: Incumbent President and his challenger from the military are trying to outdo each other in spending largesse targeting rural poor ahead of the May election.
• South Africa: Recent inflation readings have been the lowest in a long time on lower fuel expenses. Expected to stay low.

5. India: Retail SIP Inflows Show Sharp Slowdown

• 62% of small cap funds, 38% of mid cap funds have negative 3-year SIP returns
• 33% of large cap funds have 3-year SIP returns lower than FD rate
• AMFI data shows 50% of SIP accounts were registered since April-17
• Discontinued SIP accounts in 9MFY19 are 24% higher than those over entire FY18. Net SIP additions are down 70% in last 6 months.
• Even though gross SIP inflows are holding up, industry experts indicate net inflows have fallen from 70% of the gross in mid-2018 to 40% currently.

In this briefing:

1. Coromandel International: Doing the Fieldwork Before the Harvest.
2. India’s Military Strikes on Pakistan: No War in the Offing from Either Side
3. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand
4. India: Retail SIP Inflows Show Sharp Slowdown
5. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

1. Coromandel International: Doing the Fieldwork Before the Harvest.

Coromandel International (CRIN IN) is an agri-solutions company that is the 5^th largest Agro-chemical company in the country. It is India’s largest private sector Phosphatic fertilizer company, India’s largest Single Super Phosphate (SSP) company, and India’s largest organic manure company. It is India’s fourth largest agro-chemical manufacturer and has an R&D base to create and refine its product offerings as well as a retail chain with over 800 stores to act as a one-stop-solution for farmers.

Key Growth Drivers:

• Strong Agri growth levers are driven by population growth, governmental policies, Indian soil composition, and nutrient deficiency. 
• Crop Protection segment has a growing export market as well as expiring agro-chemical patents present new market opportunities.
• Branding as well as a growing retail chain fuel growth in the domestic markets. 

Valuation:

Earnings Per Share is 22.57 in FY 17-18, 24.75 in FY 18-19E and 29 in FY 19-20E. P/E ratio is 23.33 in FY 17-18, 21 in FY 18-19E and 20.5 in FY 19-20E. EV/EBITDA is 13.69 in FY 17-18, 14.38 in FY 18-19E and 15.09 in FY 19-20E. The company is fairly valued given a high growth outlook, improving efficiencies and future market potential.

2. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

3. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

• Volatility set to rise as Thailand, Indonesia and India all Face ElectionsRussia: Michael Calvey, a US citizen and one of Russia’s most prominent foreign investors, has been detained.
• Indonesia: Incumbent President and his challenger from the military are trying to outdo each other in spending largesse targeting rural poor ahead of the May election.
• South Africa: Recent inflation readings have been the lowest in a long time on lower fuel expenses. Expected to stay low.

4. India: Retail SIP Inflows Show Sharp Slowdown

• 62% of small cap funds, 38% of mid cap funds have negative 3-year SIP returns
• 33% of large cap funds have 3-year SIP returns lower than FD rate
• AMFI data shows 50% of SIP accounts were registered since April-17
• Discontinued SIP accounts in 9MFY19 are 24% higher than those over entire FY18. Net SIP additions are down 70% in last 6 months.
• Even though gross SIP inflows are holding up, industry experts indicate net inflows have fallen from 70% of the gross in mid-2018 to 40% currently.

5. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.

But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.

Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.

If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.

In this briefing:

1. India’s Military Strikes on Pakistan: No War in the Offing from Either Side
2. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand
3. India: Retail SIP Inflows Show Sharp Slowdown
4. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited
5. Asia’s External Balances Signal Safety for Investors

1. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

2. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

• Volatility set to rise as Thailand, Indonesia and India all Face ElectionsRussia: Michael Calvey, a US citizen and one of Russia’s most prominent foreign investors, has been detained.
• Indonesia: Incumbent President and his challenger from the military are trying to outdo each other in spending largesse targeting rural poor ahead of the May election.
• South Africa: Recent inflation readings have been the lowest in a long time on lower fuel expenses. Expected to stay low.

3. India: Retail SIP Inflows Show Sharp Slowdown

• 62% of small cap funds, 38% of mid cap funds have negative 3-year SIP returns
• 33% of large cap funds have 3-year SIP returns lower than FD rate
• AMFI data shows 50% of SIP accounts were registered since April-17
• Discontinued SIP accounts in 9MFY19 are 24% higher than those over entire FY18. Net SIP additions are down 70% in last 6 months.
• Even though gross SIP inflows are holding up, industry experts indicate net inflows have fallen from 70% of the gross in mid-2018 to 40% currently.

4. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.

But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.

Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.

If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.

5. Asia’s External Balances Signal Safety for Investors

Asian currencies are, in general, well supported by economic fundamentals in the form of external surpluses and interest rate differentials. Indeed, most Asian currencies display an appreciating bias, contrary to perceptions in 2018 when all of them lost ground to the US dollar. Over the last year the underlying external strength has been reflected in Asian currency appreciation against the US dollar.