Daily India: Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign. and more

In this briefing:

1. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
2. India Generic Drugs: Antitrust Suit Could Cost Billions
3. India: Notes from Hindi Heartland, There Are Issues but People Don’t See a Better Choice than Modi
4. Farm Loan WaiversTo Dampen Credit Growth Cycle
5. Are US Stocks A Buy Yet?

1. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.

The Semiconductor Industry Association (SIA) just announced that worldwide sales of semiconductors reached $41.4 billion for the month of November 2018, an increase of 9.8% YoY, but down 1.1% MoM, the first such decline since February 2018. While the decline is modest and total 2018 total semiconductor sales are on track to reach ~$470 billion for a YoY increase of 15.7%, any decline in what should be peak holiday season is not a good sign. 

Semiconductor sales historically track Wafer Fab Equipment (WFE) sales with a roughly six month time lag. North American WFE sales have been declining each month for the past six months meaning that this latest semiconductor MoM sales decline is right on schedule.  

Leveraging a decade’s worth of historical data, we analyse two key questions that are likely on every investors mind. Firstly,for how long should we expect semiconductor sales to continue their decline. Secondly, how steep should we expect that decline to be?    

2. India Generic Drugs: Antitrust Suit Could Cost Billions

This Insight builds on our previous Insight, India Generic Drugs: US Antitrust Inquiry Widens by discussing estimated potential liabilities and details contained in court filings. Public comments by one of the plaintiffs (47 states) suggest the defendants’ aggregate liability could exceed US$6 billion, the largest previous settlement on record. There is not enough information to apportion potential liability by company, but some companies are better-positioned to bear the cost of a settlement than others. The process could drag on for an undetermined period of time (which helps the defendants). At the same time, the overhang will keep a lid on generic drug prices in the US market. 

Among Indian generic companies, Dr. Reddy’S Laboratories (DRRD IN), Aurobindo Pharma (ARBP IN),Cadila Healthcare (CDH IN), and Glenmark Pharmaceuticals (GNP IN) have the highest risk based on their market caps and exposure to the US market.       

3. India: Notes from Hindi Heartland, There Are Issues but People Don’t See a Better Choice than Modi

We have spent more than ten days in Uttar Pradesh in the second half of December 2018 and tried to assess the chances for BJP and how it could perform in 2019 Lok Sabha elections. Of course the number of seats which each party could win depends more on coalitions, the vote share will remain important nonetheless. We were trying to understand the voting preference of people and the political choices they will be making next year.

First, the good news for BJP is that Prime Minister continues to enjoy almost similar level of popularity as 2014 (the previous Lok Sabha elections) and 2017 (previous Assembly elections in the state). There is also perception that BJP Governments are in general much less corrupt than administration provided by other political parties including Congress. BJP is by far the No. 1 political entity in the state because of Modi’s leadership.

But there is also important bad news, a) the level of satisfaction with state Govt is much lower, b) issues such as cow protection have become nuisance for many people, farmers for example, c) there is a perception that BJP’s simple majority at the Centre and 3/4th majority in state made accountability more difficult and that was the reason governance also suffered in a big way, and, d) people also think that BJP’s elected representatives are not qualitatively different vs. other parties.

4. Farm Loan WaiversTo Dampen Credit Growth Cycle

The NPA growth cycle affects credit growth cycle negatively. The recent farm waivers announced by many state governments and the speculations of a nationwide farm loan waiver by the Central government do not augur well for the banks’ credit space in India.

5. Are US Stocks A Buy Yet?

• 5%-like rallies on Wall Street are signs of a bear market not a bull market
• Bull markets require strong liquidity and low risk appetite, neither yet apply
• Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
• Recent large fall in risk appetite consistent with upcoming economic recession