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Foreign Investors Are Stepping Up In India’s Debt Markets

Foreign portfolio investors have sold more than $3.1 billion worth of shares in the last month, the most in a year. One reason could be valuations in India are considered high

By Govindraj Ethiraj
New Update
Foreign Investors India Debt Markets
On today’s episode, financial journalist Govindraj Ethiraj talks to Shankkar Aiyar, well known economic journalist and columnist with New Indian Express.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (00:50) Foreign investors are stepping up in India’s debt markets
  • (03:43) Can India grow without a private capex investments? Hint, yes.
  • (13:28) Is RBI, India’s banking regulator, unfair?
  • (20:34) Oil prices crash even as Indian oil giants step up investments.
  • (23:59) Meta or Facebook is Wall Street’s new comeback kid


NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

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Markets / Debt Market

The stock markets were mostly undecided on the day of the Interim Budget 2024, which was Thursday last week.

But they did make up their mind on Friday, the last day of trading, zooming up over 1,400 points and then scaling back sharply to end at 440 points at 72,086 points. 

The broader Nifty50, meanwhile, closed at 21,854, up 156 points.

Some other data points are not looking so encouraging. Foreign portfolio investors have sold more than $3.1 billion worth of shares in the last month, the most in a year. One reason could be valuations in India which are considered high by most and the other, rising bond yields in the US which make it attractive for money to stay there.

But then in 2023, global investors bought $21.4 billion of Indian shares on a net basis, the largest total in three years, with over 40 per cent of foreign inflows coming during the last two months of the year.

Investors have been consistently moving money out of China for a while now but they could do some rethink since China is making a series of attempts to boost its markets including launching a stabilisation fund.

On the other hand, debt, as some had predicted, is running away, including for FIIs who invested over $2.4 billion or Rs 19,800 crore in the country's debt market in January, making it the highest monthly inflow in more than six years.

JP Morgan Chase & Co. in September last year announced that it will add Indian government bonds to its benchmark emerging market index from June 2024.

This landmark inclusion is anticipated to benefit India by attracting around $ 20-40 billion in the subsequent 18 to 24 months. 

As we spoke on Friday, Finance Minister Nirmala Sitharaman's aim to reduce the fiscal deficit to 5.1 per cent of gross domestic product (GDP) for FY25 is distinctly positive for the debt market going forward.

On Wall Street, companies are surprising on the upside with fourth quarter profits better than what most expected. 

CNBC reports that easing input costs, more emphasis on cost controls and efficiencies and of course significantly reduced expectations have helped.

90% of energy companies have beat earnings estimates, with profits coming in almost 14% above expectations while in healthcare 85% have beat on the bottom line, with earnings coming in nearly 11% above expectations and finally Tech 84% have posted earnings beats, with earnings more than 5% above expectations. We will come to Meta’s blowout earnings later in the show.

Will Private Sector Start Capital Investment

One question that comes up in most forward strategy discussions on Indian companies nowadays is whether the capital expenditure cycle will resume.

On one hand, most analysts say Indian companies are reaching closer to peak capacity, or around the time they should start investing again.

While this is happening or beginning to happen in some sectors, evidently the pace is not noteworthy.

Interestingly, TV Somanathan, Finance Secretary to the Government of India told Moneycontrol that with or without  private capital expenditure, India has enough firepower to sustain the rate of growth at the current levels.

The way he says it is that growth will continue, which I am guessing is the 7.3% figure the Government has put out.

"Without the private sector coming forward, we have not achieved the growth rate we have achieved. We will continue to be spending more next year than we spent this year," he said.

The government allocated Rs 11.1 lakh crore as capital expenditure for the next fiscal year, an increase of 11.1 percent from the current year's Budget estimate and 16.9 percent higher than the revised estimate.

Read one way obviously this means the Government is confident of growth because of the money it is pumping into the system, mostly infrastructure. But read another way, it also suggests it is not confident the private sector will be majorly investing at least in the coming year, which is 2024-25.

Government spending heavily is a good sign obviously because we can see where it is going in terms of robust infrastructure but Government investing alone is not a great place to be in either.

So maybe the private sector will step up investments this year or maybe it will go a little slow. But what is the larger strategic direction that the Government is and has indicated in its Interim Budget inasmuch as we can take away some larger directional signals.

I am joined by Shankkar Aiyar, well known economic journalist and columnist with New Indian Express and I begin by asking him what were the directional cues he took away from the Interim Budget, in a larger sense. 

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Does The RBI Know What It Is Doing?

In December 2020, The Reserve Bank asked HDFC Bank to stop all launches of its upcoming digital business-generating activities and sourcing of new credit card customers after repeated outages at its data centre which impacted operations.

The announcement sent a shock wave of sorts in the financial markets. One that the RBI would do something like this to HDFC Bank whose pedigree is strong. Second, punishing it for something which may have been beyond its control.

I don’t recall people signing petitions in support of HDFC Bank or leading protest marches to the RBI’s headquarters in Ballard Estate, Mumbai though.

The RBI lifted those restrictions, partly for credit cards in August 2021 and in March 2022 for digital lead generation. HDFC Bank said it  continues to serve its customers with dedication and humility.

Earlier in June 2019, the RBI slapped a Rs 1 crore fine on HDFC for non compliance on KYC and Anti Money Laundering norms and identified deficiencies in regulatory compliance.

Once again, while the fine was minor, the fact that the RBI cracked down at all was interesting.

Also, this was based on a reference from customs authorities regarding submission of forged bills of entities by some importers to the bank for remittance of foreign currency.

So HDFC Bank was essentially being punished for being conned.

In April 2021, the RBI stopped AmericanAmerican Express Banking Corp from onboarding new domestic customers from May, 2021.

The reason, American Express violated its circular on storage of payments data issued in 2018. The ban did not affect the existing customer base of AmEx.

Amex sounded like it was hurt by the move saying they were in regular dialogue with the Reserve Bank of India about data localization requirements and have demonstrated our progress towards complying with the regulation. 

Restrictions were lifted after 16 months.

And finally, in mid November 2023, the RBI ordered Bajaj Finance, also one of the hottest newer finance stocks, to stop issuing new loans through its 'eCOM' and 'Insta EMI Card' due to non-compliance with digital lending guidelines.

The RBHI said it found non-issuance of Key Fact Statements (KFS) to the borrowers under these two lending products

The Key Fact Statement is a concise document that outlines the essential terms and conditions of a financial product, such as a loan or credit facility. It includes information about interest rates, fees, repayment terms, and other critical details.

It was introduced last year - as part of the Digital Lending Guidelines- to drive transparency in consumer lending.

Now, maybe some folks at Bajaj Finance decided people don’t read it either way so this was ignored or not sufficient attention was paid to it.

And it is quite likely that the more paperwork you load on a customer at that crucial moment in Croma or Vijay Sales when she or he is buying a 48 inch TV then quite likely they will start looking around the showroom at other options. Or give up on the purchase altogether.

Anyway, Bajaj finance stock price fell 5% after this move which was evidently part of a larger crackdown on small loans which the RBI has clearly found to be running away.

The RBI had already increased weightages for banks, non bank finance companies and credit cards for these small loans anticipating rising defaults.

The word anticipation is important.

It is not my case that the RBI’s moves are all perfectly thought through and can survive the scrutiny of the VC funded genius logic that usually pervades the financial system, under the guise of fintech.

Yes, I am saying that the RBI could be behind the curve.

Let's take a slightly different example, bitcoins and virtual currencies. Do you know since when RBI has been formally and officially cautioning the system. 

Well, it has been since December 2013, that is 11 years ago, being the official releases I could find.

When did the implosions in bitcoin start ? Well in the last two years beginning with the collapse of FTX in November 2022. And then crypto exchange Finance, which faced fraud charges in the middle of last year.

The point is all this time, people were sniggering at the RBI and by extension the Government of India for being behind the curve and a bunch of fuddy duddy oldies who were not getting it.

Well, thank your stars they were and are not. RBI’s Governor Shaktikanta Das as recently as two weeks ago said in Davos he did not care if other countries went ahead with bitcoin exchange traded funds and the like, referring to the SEC doing so.

““So far as India is concerned, we see a lot of risks and it is not necessary for us that what somebody else does, we simply adopt,” he said.

Now, without getting a fairly pointless merit based discussion on PayTM and its shenanigans for which the markets are inflicting punishment already, let me add a few points.

The RBI can be behind the curve when it comes to the march of technology but evidence suggests that is barely the case. In the case of crypto, it has been, if anything, ahead of the curve in warning the system.

Now, on specific cases, I quoted three instances, from HDFC Bank, Bajaj Finance and American Express cards where the RBI has cracked down for quite different reasons.

The RBI, like any mature regulator, acts with a reasonable degree of precision, it does not shut down the whole organisation, it takes care to see ordinary deposits are not hurt - which by the way is a key responsibility and finally, it sends home a message that it is watching carefully.

The punishments seem pretty balanced and at least going by the examples quoted here, do not seem to care about the pedigree or experience or legacy of the companies in question, or their founders and promoters.

Now you could argue that there are other cases where the RBI has looked the other way because of some pressure. Like the big bank loan problem we faced a decade ago. But that was more individual banks and the RBI could be faulted for not tightening the screws earlier.

But most importantly, I always have got the feeling that the RBI is acting in anticipation and trying to prevent a bigger problem from happening rather than solving the one it may have just discovered. So apply that to PayTM too.

Finally, India has mature economic regulators, among the best in the world and all my experience tells me that, for all the faults they surely have, I would trust most of their actions. I would of course question them as well.

Incidentally, the one action of the RBI I have questioned, am pretty sure it is in public domain somewhere, is the creation of the payment wallets because I always found it a bypass that we should find another workaround or solution for.

India’s Energy Giants Step Up On Investments As Oil Prices Fall 

And here is our energy segment brought to by IndiaEnergyWeek starting later this week on 6th.

ONGC, IOC and other oil PSUs will invest about Rs 120,000 crore in the coming fiscal starting April 1 in oil and gas exploration, refineries, petrochemicals and laying pipelines, the PTI has reported. 

The figure has been gleaned by the Budget 2024-25 documents and suggests it is around 5 per cent higher than the amount being spent in the current fiscal year. 

Oil and Natural Gas Corp (ONGC) has a planned capital spending of Rs 30,800 crore in the next financial year, including for new reserves of oil and gas and bringing to production discoveries it has already made and in developing discoveries on both east and west coasts of the country.

Indian Oil Corp (IOC), the country's top oil refiner, will be the top spender with an investment outlay of Rs 30,910 crore, with a focus on  expansion and upgrade of its seven refineries that produce fuel. 

Bharat Petroleum Corp Ltd (BPCL) has proposed a 30 per cent higher capital spending at Rs 13,000 crore, two-thirds of which will be in its core refining business.

Hindustan Petroleum Corp Ltd (HPCL), will invest Rs 12,500 crore in FY25, marginally higher than Rs 12,000 crore in the previous year and Oil India Ltd, the nation's second-largest oil producer, will invest Rs 6,880 crore next year as compared to Rs 5,648 crore in the current fiscal.

Elsewhere, oil prices fell as talks to pause the Israel-Hamas war gave comfort to the markets and suggested a reduced geopolitical risk premium.

Brent Crude has fallen to $77.33 a barrel, which is quite a fall if you take the events of the last few days including US bombing parts of Iraq and Syria in retaliation for a Jordan attack which killed US soldiers.

West Texas Intermediate fell 2.1% to settle around $72 a barrel. Futures are down 7.3% since last Friday — the biggest weekly tumble since early October, said Bloomberg.

Meanwhile, supply seems strong even as demand seems weak.

Which Clean Car Technology is India supporting?

Apparently the answer to that is a little ambiguous going by a statement from a Tata Motors senior official on Friday.

Reuters reported a Tata Motors official saying India needs to make clear which clean-car technology it intends to support to meet its zero-emission goals.

His point, automakers can’t invest in all technologies.

The comments came in response to a question seeking Tata Motors' position if the government were to lower import taxes on hybrid cars.

Did you know by the way that India taxes electric vehicles at just 5%, while the levy on hybrids is as high as 43%, just below the 48% imposed on petrol cars.

There is pressure on the Government from the Japanese carmakers to reduce taxes on hybrids which Toyota and Maruti are making and are also flying off the dealerships even before they hit them.

Presumably, all the car makers including the Japanese ones don’t want Tesla charging into the market without first investing in a local manufacturing plant either, as they have all done.

The Top Comeback Kid

Meanwhile, Bloomberg is reporting that Meta Platforms Inc. just became Wall Street’s top comeback kid.

It was only a couple of years back the Facebook owner suffered the single biggest market value destruction in stock-market history. 

Meta’s stock rose 20% Friday to close at an all-time high of $474.99 per share. 

The gain added $197 billion to its market capitalization, the biggest single-session market value addition, eclipsing the $190 billion gains made by Apple Inc. and Amazon.com Inc. in 2022.

“Meta’s AI pipeline for both users and advertisers is robust, with more tools set to launch and scale throughout ‘24,” an analyst told Bloomberg.

Meta, which reduced headcount by 22% in 2023, unveiled plans for a $50 billion stock buyback, and announced its first quarterly dividend on Thursday, a sign to investors that it has money to spare and a reason for them to stick around.

Meta has also seemingly dumped its metaverse plans and focussed on AI to improve ad targeting and its social platforms. All of which seems to be delivering results, going by the market's response.