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What’s Keeping Indian Markets Strong?
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Good morning. In today’s edition — a divergence in India’s economy thanks to the rich getting richer; the State Bank of India’s (SBI’s) good run; and the Adani bribe saga continues.
THE TAKE
The Rich Getting Richer Is Creating A Sustained Divergence In India’s Economy
India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI), the country’s central bank, had said at a conference in September that I had the opportunity to attend.
“We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he had said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.
Acharya, who is the CV Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), had pointed out that as the rich get richer, they look for financial assets to invest in.
In the case of India, the rich can’t invest their money outside of their country very easily. “So, it has to chase the limited financial assets in the country and a lot of the prices in that space have gone up but it doesn't boost India's consumption,” Acharya had said.
The professor also touched upon the fact that rural consumption and investments had weakened after the Covid-19 pandemic.
Acharya was likely referring to the post pandemic spending surge that had already started to show early signs of slow down. The signs became more stark once the results of consumer product companies started to be released.
The latest HSBC Global Entrepreneurship Wealth Report 2024 reminded me of Acharya’s words.
Good News And Bad
The good news is that Indian entrepreneurs are generating wealth, including from stock sales in a booming stock market or from exits to venture capital investors. They have also generated wealth from businesses which have been lifted by the sheer consumer-led growth as well as public spending we saw accelerate in recent years.
But there’s a flip side.
Rich Indian entrepreneurs are using their wealth predominantly for investment in stocks, bonds and real estate, the HSBC's Wealth Report 2024 said. Their approach to wealth management is quite different from other markets, the report goes on to illustrate.
According to the report 82% of Indian entrepreneurs — those with at least $2 million worth of investable assets — prefer to invest in the above-mentioned asset classes, which is the highest percentage amongst business owners in ten international markets (at 51%).
Investment in other businesses (at 41%) and precious metals and stones (25%) are the other investment avenues for the wealthy Indian entrepreneurs, the report suggests.
The results, HSBC said, are based on a sample of 1,798 high-net worth business owners, with at least $2 million worth of investable assets, who chose to take part in the survey.
Here are some more insights on the spending spree India’s wealthy are on as compared to other countries.
Six out of 10 (61%) Indian wealthy business owners allocate personal wealth to real estate for their own use compared to one in two globally (51%). They are also more likely to spend money on luxury goods (56%), compared to a global average of 40% and luxury experiences (44%), compared to a global average of 35%.
While the Indian market remains an attractive place to do business for the nation’s entrepreneurs with 75% of them operating domestically, many of them are looking to move abroad. Six out of ten (61%) are considering a personal move in the next 12 months, with Singapore, UAE and the US the most popular destinations.
Two in three (64%) are considering moving personal wealth in the next 12 months, with Singapore and UAE the most popular destinations.
Most of these individuals said their aim to grow their wealth was to improve their personal and family health and to ensure financial freedom. Enjoying a luxury lifestyle is cited by 44%, compared to a global average of 32%. However, they also have a strong sense of duty and nine out of ten (92%) agree that they take action to make a positive impact on society.
Nearly six out of ten (58%) say they are not currently thinking about or planning to exit their business, higher than the global average of 49%, and that figure increases to 72% for first generation entrepreneurs. More than four in ten (44%) are serial entrepreneurs, the second highest percentage in any of the markets surveyed.
A Sustained Divergence In The Economy
While the report is not a sweeping study of all wealth created and where it flowed, it does surely reinforce the point that there is a sustained divergence in the economy.
Since most wealth continues to go into stocks and bonds or back into them, it is keeping markets and domestic buying strong as is quite evident from the market movements in the last two months.
It also means that there is a mismatch between supply and good quality investment opportunities because they are mostly highly priced.
On the other hand, quarterly results of most consumer product companies are reflecting a stagnation of sorts in consumption if not slowdown.
This reinforces the fact that the wealth created is not directly flowing to the people who could actually spend it and thus drive up consumption and economic growth, something I have discussed in the past as well.
Real estate of course is seeing considerable investments, particularly in higher priced properties. This obviously has a trickle down effect into the construction industry and the over 71 million people who work in it, which is important because construction is the largest employer in India.
This also accentuates another mismatch, that all those who are trying to buy homes to live in are not able to do so this time around as well. We have already seen a slowdown in affordable housing because people are unable to put down the money for loans.
Interestingly, like we mentioned earlier, more than half of the surveyed individuals said they were looking to move to other countries and move their wealth in the next 12 months.
Their biggest worries were corruption, inflation and taxation. In that perhaps, whether rich or not rich, there is unanimity in thought.
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CO:RELATION
SBI Shows Heft
Most bank stocks have been underperformers in 2024. The Nifty Bank index has relatively underperformed the Nifty 50 index. However, SBI, the country’s biggest bank by balance sheet size, has outperformed in 2024 like no other bank. India’s central bank the Reserve Bank of India has announced that three banks, SBI, HDFC Bank and ICICI Bank, are systemically important.
The standout performance of SBI is significant considering the size of the balance sheet and the market cap. That can be attributed to the visibility of future profits. The bank has invested considerably in digital technology. The management informed analysts that it has managed significant cost savings due to digital banking. They said more than eight crore customers have been registered with YONO, the smartphone banking app driving the digital agenda. About 61% of regular savings bank account openings happened through YONO in the quarter to September 2024. Doing away with the physical process can have considerable productivity benefits. According to a new World Retail Banking Report by Capgemini, a global tech firm, retail bank employees spend 55% of their time in physical documentation and related processes.
CORE NUMBER
Rs 11,333 crore
This is how much money was lost in cyber frauds during the first nine months of 2024, data from the Indian Cyber Crime Coordination Centre (I4C) under the Ministry of Home Affairs (MHA) showed. The Indian Express reported that the highest number of such scams took place in stock trading, followed by investment based and digital arrest scams. The report said that a significant part of these scams, almost 45%, originated in south east Asian countries such as Myanmar, Cambodia and Laos.
FROM THE PERIPHERY
—🧑⚖️ Adani Green Energy Ltd (AGEL) has denied allegations of bribery and foreign corruption, stating that the charges against Gautam Adani, Sagar Adani, and senior executive Vineet Jain under the US Foreign Corrupt Practices Act (FCPA) are "incorrect." However, the indictment unsealed by the US Justice Department last week alleged that Sagar Adani of Adani Green Energy used his cell phone to track details of bribes offered and promised to Indian government officials to help secure contracts with the Solar Energy Corporation of India. The SEC is investigating the Adani Group to determine whether it violated US securities laws, including the FCPA, which prohibits US companies and individuals from bribing foreign officials to gain a business advantage.
—✈️ It was a relief for budget carrier SpiceJet as Ireland-based lessor Aircastle withdrew its insolvency case after a $5.6 million settlement. The National Company Law Tribunal (NCLT) in Delhi approved the settlement on Wednesday, Mint reported. This follows SpiceJet's ongoing efforts to resolve disputes with creditors, including a Rs 3,000 crore fundraising through a qualified institutional placement. The airline had previously resolved a $23.39 million dispute with Aircastle and Wilmington Trust for $5 million, along with other settlements involving Horizon Aviation and Engine Lease Finance. Despite ongoing insolvency claims, none have resulted in proceedings against SpiceJet so far.
—🤝 Kim Kyung-Ah’s appointment as president and CEO of Samsung Bioepis, a biopharmaceutical company, is a historic moment for South Korean corporate leadership. For the first time in 86 years, Samsung has appointed a woman outside its founding family as CEO of a group company, The Business Standard reported. Kim, with over two decades of experience in biologic development, takes charge of product development following a broader reshuffle. She becomes the second woman to lead a Samsung affiliate, after Lee Boo-jin, CEO of Hotel Shilla and granddaughter of Samsung’s founder, Lee Byung-chull. Despite progress, women still occupy only 10% of board seats in South Korea’s top companies, highlighting persistent gender inequality.
—💱 Jamieson Greer, nominated by President-elect Donald Trump as the US Trade Representative, views China as a “generational challenge” and advocates for strategic economic decoupling. Greer, instrumental in imposing tariffs during Trump’s first term, also proposed policies to prevent Chinese firms from dodging US tariffs by relocating abroad. He had earlier urged Congress to revoke China’s “permanent normal trade relations” status and impose higher tariffs on Chinese goods, including those manufactured elsewhere or containing significant Chinese content. Greer also recommended creating new laws to counter Chinese economic retaliation, including tariff revenues to support affected US businesses and workers. .
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