Good News from India's Manufacturing Sector Hints at Economic Revival

After a long time, positive news comes in for India’s manufacturing sector as its activity reached an 8-year high in January 2020. The IHS Markit India Manufacturing PMI rose from 52.7 in December 2019 to 55.3 in January 2020.

Crux of the Matter

A survey conducted says that it is due to the sharp rise in new business orders amid a rebound in demand conditions that led to the rise in production and hiring activity.

Pollyanna de Lima, Principal Economist at IHS Markit said, “Manufacturing sector growth in India continued to strengthen in January, with operating conditions improving at a pace not seen in close to eight years.”

It is the 30th consecutive month that the manufacturing PMI has remained above the 50-point mark. Point above 50 means expansion whereas below that denotes contraction.

The fastest increase in new export orders was recorded since November 2018 as the rise in total sales was supported by strengthening demand from external markets.

Hiring activity also improved in January as firms employed at the fastest rate in nearly 7.5 years.

The survey also showed that there was a slow increase in both input costs and output charges. This survey and other positive forecasts have given hope and optimism in the manufacturing industry.

Curiopedia

Purchasing Managers’ Indexes (PMI) are economic indicators derived from monthly surveys of private sector companies. The three principal producers of PMIs are the Institute for Supply Management (ISM) the Singapore Institute of Purchasing and Materials Management (SIPMM) and the Markit Group.PMI surveys on a monthly basis by polling businesses that represent the makeup of the respective business sector. ISM’s surveys cover all NAICS categories. SIPMM survey covers all manufacturing sectors. The Markit survey covers private sector companies, but not the public sector. More Info

IHS Markit Ltd is a London–based global information provider formed in 2016 with the merger of IHS Inc. and Markit Ltd. One part of this conglomerate originally was a firm that assigns IMO identification numbers for ships, companies and registered owners. It has since grown to incorporate other companies in the information services sector, many dating back to the late 1700s and 1800s. With more than 1400 employees its revenue as of 2017 stands at US$3.6 billion. More Info

World Bank Projects 5% Growth Rate For India

In a slight respite to the Indian economy, World Bank in its recently released Global Economic Prospects projected a 5% growth in 2019-20 fiscal which is more likely to recover and reach up to 5.8%.

Crux of the Matter
  • India’s weakness lies in credit from non-banking financing sector which is slowing down the growth.
  • The report also highlighted that the recent stressful geopolitical situations have also contributed to tensions in the economy.
  • The report praised the efforts of the Indian government to eliminate subsidies on LPG.
  • The growth rate of the US also slowed down to 1.8% due to uncertainty. Europe‘s economy also has slipped due to weak industrial activity.
  • The growth rate of Bangladesh has been projected above 7%.
  • World Bank said the growth in South Asia is expected to pick up the pace and reach 6% by 2022.
  • World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu said, “With the growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth.”.
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The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. It comprises two institutions: the International Bank for Reconstruction and Development, and the International Development Association. he World Bank’s most recent stated goal is the reduction of poverty. As of November 2018, the largest recipients of World Bank loans were India ($859 million in 2018) and China ($370 million in 2018), through loans from IBRD. More Info

PwC India Reports 50% drop in Merger & Acquisitions In 2019

According to a consulting firm PwC India: Annual Review And Outlook for 2020 report, Merger and acquisition (M&A) activity in India halved in value in 2019 as compared to 2018. As of December 2019, India got 765 deals worth $37 billion out of which only 11 deals are valued at over $1 billion each compared to 25 in 2018.

Crux of the Matter
  • India’s inbound activity totalled around $12 billion in 2019 as compared to 2018 which saw deals worth $22.4 billion. The major highlight of 2018 was the acquisition of Flipkart by Walmart Inc. at $16 billion.
  • The US-China trade war contributed to the slowdown in deal activity as investors have a cautious approach.
  • Despite the slowdown, M&A deals by foreign firms rose from 28% to 32% value this year.
  • The report said, “India has witnessed significant interest from overseas corporates across sectors including Steel, Energy, Infrastructure and Financial Services.”
  • On the private equity (PE) front, investors were seen chasing control transactions or buyouts, with such deals witnessing record-high activity this year.
  • The buyout activity surpassed the record of 2018 by 30% in value. There were 45 buyout deals totalling to $12 billion in 2019.
  • This suggests that investors are now more keen to play a role in the performance of their investments, to be able to extend their expertise and work towards the profitability of the company.
  • The report suggests that foreign players are evidently still bullish on India and eager to take part in the opportunities India presents despite the challenging situations. This also depends on both domestic and global volatility as well as government reforms.
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PricewaterhouseCoopers International Limited is an MNC professional services network with headquarters in London, United Kingdom. PwC ranks as the second-largest professional services firm in the world. PwC is a network of firms in 158 countries, 721 locations, with 250,930 people. As of 2018, 28% of the workforce worked in Asia, 28% in North America and the Caribbean and 30% in Western Europe. The company’s global revenues were $41.3 billion in FY 2018. PwC provides services to 420 out of 500 Fortune 500 companies. The firm in its present form was created in 1998 by a merger between two accounting firms; Coopers & Lybrand, and Price Waterhouse. As of 2019, PwC is the 5th-largest privately owned company in the United States. More Info

IMF expected to downgrade India's GDP growth forecast in January review

gita gopinath

Chief Economist of The International Monetary Fund Gita Gopinath while speaking at the Times Network India Economic Conclave on December 17 said, “the International Monetary Fund (IMF) is likely to cut India’s growth estimate ‘significantly’ in January 2020.

Crux of the Matter
  • In the October forecast of the IMF India’s growth was expected at 6.1% in 2019 and up to 7% in 2020. It will be reviewing the October estimates in January.
  • IMF believes that India has thrown a surprise by being the only emerging market to have had such a performance
  • Gita Gopinath said, “If you look at recent incoming data, we would be revising our numbers and release them in January, and it is likely to be a significant downward revision for India,”
  • RBI and some other analysts have already revised its growth estimates downward for FY20 due to the persistent slack in consumption and absence of private investments and exports.
  • Gita Gopinath doubts the aim to achieve a $ 5 trillion GDP target by FY2025. She pointed out that India will need nominal growth of at least 10.5% compared with 6% in the last six years, and real growth of at least 8-9% to be able to achieve the target.
  • It is now crucial to bring massive land and labour market reforms to achieve the $5 trillion aspirations.
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The International Monetary Fund (IMF), is an international organization headquartered in Washington, D.C., consisting of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world while periodically depending on World Bank for its resources. Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing a balance of payments problems can borrow money. More Info

Cabinet Launches Bharat Bond ETF

The Union Cabinet on December 4 launched the Bharat Bond Exchange Traded Fund (ETF) aiming to attract retail investors to government debt, with units priced as low as Rs 1,000. It is expected to deepen the bond market and bring in retail participation in the sector.

Crux of the Matter
  • The Bharat Bond ETF which is the first corporate bond in the country will be managed by Edelweiss Mutual Fund.
  • It was launched after two years of deliberations between the Government of India and all stakeholders.
  • It will have a fixed maturity of three and ten years and will trade on the stock exchanges.
  • The cost to the ETF investor is almost negligible at 0.0005%. as compared to the mutual funds which are 100-150 basis points
  • Bond ETF will provide safety, liquidity and provide tax efficiency as they are taxed with the benefit of indexation which significantly reduces the tax on capital gains for investor.
  • Retail investors can buy Bharat Bond ETF units by paying Rs.1,000 to market-makers, who would then aggregate and pay Rs.1 crore to Edelweiss to buy the units. Edelweiss has tied up with a number of market-makers to facilitate this ease of access.
  • Radhika Gupta, CEO of Edelweiss Mutual Fund said, “Debt of sovereign always demands a premium; so, this will be a good offering for retail investors. This product is safeguarding both the safety and return expectation of retail investors.”
  • The government in 2014 had launched ETF for equities which proved to be successful and thus it decided to launch ETF for bonds to provide additional money for state-owned firms.
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Exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETF distributors only buy or sell ETFs directly from or to authorized participants, which are large broker-dealers with whom they have entered into agreements. An ETF combines the valuation feature of a mutual fund which can be bought or sold at the end of each trading day for its net asset value. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively managed ETFs. More Info