India’s Jagged Journey Jubilation
Indian shares continued to outrun BRIC and Asian peers with an over 25 percent upswing after the ruling BJP triumphed in state elections and the Finance Minister reiterated a “long journey” reform plunge at a World Economic Forum event. Prime Minister Modi ordered fuel subsidy decreases in the aftermath as a stake in Coal India will be sold on the exchange after a previous scotched attempt. The changes should pare the fiscal deficit 1 percent to GDP as growth and inflation are both in the 5 percent range, the latter inviting central bank easing. Bonds have rallied in response and the currency is also firm with over $300 billion in reserves and a smaller current account gap. Price-earnings ratios above 15 exceed the core universe average by 5 points but bank listings remain soft with bad loans expected to reach 10-15 percent of the total under stricter standards. At the November G-20 gathering representatives hinted at greater financial sector opening as a compromise on food protection was struck with the US to enable the WTO facilitation accord to go ahead. India’s Oil and Gas Company also came under scrutiny for a $200 billion long-term expansion plan at home and abroad as Washington and Beijing agreed in principle to carbon emission cuts in the coming decade. According to the International Energy Agency, petroleum appetite will outstrip China’s by 2020 and ventures abroad target Russia and Africa regardless of geopolitical objections. In the post-Modi euphoria traditional business outsourcing has been a disappointment as the services PMI dropped to 50. He has recognized the setback with a push to take global manufacturing share but outdated rules and infrastructure throttle the ambition according to executives still awaiting the outcome of lengthy tax disputes.
Indonesian stocks have also gained 20 percent as the new President there appointed a business friendly cabinet and prepared 30 percent energy subsidy withdrawal and launch of a one-stop foreign investment shop. The rollback can be ordered by presidential action which overcomes slim parliamentary backing and the easier permitting process intends to elevate World Bank rankings above 150th place out of 190 countries. With higher domestic energy cost the central bank raised the benchmark rate 25 basis points to maintain the 3-5 percent inflation target next year as GDP growth dipped to 5 percent on flat fixed investment and lackluster consumption over the election cycle. Following external bond default by the Bakrie family-owned Bumi resources, officials have directed borrowers to hedge their exposures as international buying of local government instruments also wanes on currency risk and regional competition. Vietnam after a sovereign upgrade to BB returned with a $1 billion 10-year issue breaking an extended absence, with almost 500 accounts bidding. The oversubscribed placement preceded a final phase of TPP free trade conclusion with the US as the journey may be promoted by the Senate Republican majority swing.
