India's Economy Surprises With A 7.2% GDP Growth
On today's episode, financial journalist Govindraj Ethiraj talks to CRISIL Chief Economist D K Joshi about India's 7.2%...29 Jun 2023 5:30 PM IST
-
- <01:14> India's economy surprises with a 7.2% GDP growth
- <06:11> Vedanta's $19 billion chip project in Gujarat runs into delays with the Government likely to reject its first application
- <08:31> A move triggered by the Adani-Hindenberg Research report, India's SEBI releases a consultation paper saying high risk foreign portfolio investors must disclose more about themselves.
- <16:00> Hmm..Adani's new problem, an auditor refuses to qualify a business partner as unrelated because it probably feels it is actually related.
TRANSCRIPT
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.
Good morning, it's Thursday the 1st of June and I'm Govindraj Ethiraj with The Core Report, coming to you from Mumbai, India's financial capital and most rocking city in the world.
Here are our two quick reports and theme, the 'Hmm' section and 'Conversation of the Day,' where we discuss:
- India's economy surprises with a 7.2% GDP growth.
- Vedanta's $19 billion chip project in Gujarat runs into delays with the Government likely to reject its first application.
- In a move triggered by the Adani-Hindenberg Research report, India's SEBI releases a consultation paper saying high-risk foreign portfolio investors must disclose more about themselves.
- Hmm... Adani's new problem, an auditor refuses to qualify a business partner as unrelated because it probably feels it is actually related.
India's GDP is at 7.2%
India's full-year gross domestic product is estimated at 7.2% for the last financial year or 2022-23, a number that has been speculated, hinted as well as projected in recent weeks by various government functionaries.
The previous full year was 9.1%, thanks mostly to a low base triggered by Covid and a constrained economy.
For the latest quarter, the economy grew at 6.1%, figures released by the government's Ministry of Statistics and Programme Implementation showed on Wednesday evening.
Breaking the numbers down further, manufacturing grew only 1.3% after growing over 11% in the previous year.
Agriculture, forestry and fishing grew at 4%, in contrast to the 3.5% growth in the previous year.
Trade, hotels, transport, communication and other services grew 14%, after growing a shade under 14% in the previous year.
Chief economic advisor V Anantha Nageswaran had said around March 1, that high-frequency data indicate buoyant economic growth momentum and he was confident "Given the high-frequency indicators and the pace at which they are recovering, I do believe that the current year's (GDP numbers)... are more likely to (be) revised upward than downward," he had said then.
The numbers are still somewhat fresh but I managed to seek out a first-cut analysis on the headline numbers when I caught up with Crisil chief economist DK Joshi. My first question: did the 7.2% number beat expectations?
Joshi said this year will not be as strong given the strong global headwinds and early signs like lower exports.
Where The Chips Shall Land
Vedanta-Foxconn's $19 billion semiconductor chip project may not get government incentives to make 28-nanometer chips.
The project does not apparently meet the criteria for getting government assistance, which runs into billions of dollars and can make the difference between stop-and-go for the project.
Vedanta Resources and Taiwan's Hon Tai Precision Industry can apply again but a rejection would mean delays, Bloomberg News has reported.
While Hon Tai makes a significant chunk of the world's iPhones, it, and Vedanta don't have any real experience in chip making. For which the project needs a technology partner or license manufacturing grade technology for these 28 nm chips.
The government had pledged $10 billion to help chipmakers promising it would bear half the cost of setting up all semi-conductor sites, says Bloomberg.
Vedanta had earlier said Hon Hai had secured production grade high volume 40 nm technology but development grade technology for the more sophisticated 28 nano metre chips.
So what is this 28-nanometre chip?
Taiwan's TSMC has been making 28-nanometre chips for over 10 years. These chips support applications ranging from central processing units or CPUs in computers to graphic processors, high-speed networking chips, smartphones, tablets, home entertainment, consumer electronics and automotive.
This would give you a sense of why this is relevant and perhaps critical to a growing market like India and its hunger for many devices, led by smartphones.
Forty-nanometre chips are older - it was launched in 2008 - and slower compared to 28-nanometre chips, going by some of the tech journals I glanced through.
TSMC has also been pushing customers to switch to 28 nanometre with one journal saying they are not expanding manufacturing of 40 nm and instead focussing on 28 nm.
It is very possible that Vedanta has a good reason for being 40 nanometre capable and feels that is more appropriate for Indian markets and the production cycle but the reasons are not clear to me now.
The Government is likely asking Vedanta Hon Tai to apply afresh in the 40 nm category.
The Big FPI LoopHole
India's market regulatory body the Securities & Exchange Board of India says foreign portfolio investors (FPIs) who have a substantial portion of their investments concentrated in a single Indian company will have to make additional disclosures, according to a consultation paper released today.
The language of the consultation paper is quite revealing.
The paper says that the objective of this exercise is to foster and enhance trust and transparency and greater investor protection in the Indian securities market.
Thus hinting that trust and transparency levels are either low or have been lost.
No doubt this is a direct outcome of the Adani Hindenberg report saga wherein the latter, a New York-based research house and short seller claimed that Adani group company's stock was owned by very few investors, alleging they were somehow linked to each other.
Many market watchers, including myself, have felt the problem in this issue was not whether there were strange corporate entities sitting overseas holding Adani group company's stock in India but the utter lack of transparency of them and no one being able to pierce the corporate veil, so to speak.
Sebi now says that high risk investors will have to reveal more.
"Such FPIs shall be required to provide granular data of all entities with any ownership, economic interest, or control rights on a full look-through basis, up to the level of all natural persons and/or public retail funds or large public listed entities."
Going by data as of March 31, 2023 Sebi has estimated around $31 billion or Rs 2.6 lakh crore or 6% of total FPI equity assets under management and less than 1% of India's total equity market capitalisation could fit the high-risk FPI category.
Meanwhile, the low and moderate risk categories are sovereign funds - which is owned by Governments like Singapore or Abu Dhabi, central bank funds and then moderate risk funds like pension or public retail funds with a diverse investor base.
From my own understanding, Sebi has always sought to register portfolio investors who have diverse investor shareholdings. Obviously, in recent years, there has been some relaxation in keeping with a rising demand for greater liberalisation in inflows as long as the entities investing are not involved in some nefarious activity.
So these entities or companies can invest in India but by first registering themselves first as FPIs with Sebi. Individuals are however not permitted to invest directly. For example, you can invest in the US markets and buy stock of Apple or Intel sitting in India but not the other way around.
But the wording of the consultation paper is quite shocking in a way given that it acknowledges indirectly what has been suspected for a while.
It says that some FPIs have been observed to concentrate a substantial portion of their equity portfolio in a single investee company/company group and in some cases these concentrated holdings have been near static and maintained for a long time.
Such holdings raise various regulatory concerns, Sebi says.
The hope of course is that Sebi goes through with the proposals mentioned in the consultation paper. And perhaps goes further to bring about greater transparency. Any step otherwise will fail to address the key issue plaguing the Indian markets, particularly for foreign portfolio investors. In Sebi's own words, trust and transparency.
Hmm
The Adani Group-owned Adani Ports & Special Economic Zone has an interesting problem.
Its auditor Deloitte Haskins and Sells raised concerns on Tuesday over the port's transaction with three companies. It is unusual for a top auditor to issue a qualification like this.
Adani says these companies were unrelated to it while the auditor says it could not confirm the same and the firm, presumably Adani, refused to get an independent external examination that would help prove so, Bloomberg News has reported.
The transactions include an engineering contract with a subsidiary of a company identified in the Hindenberg Report from whom $453 million was recoverable. Deloitte was told by Adani this contractor is not a related party.
This revelation in itself could be dismissed as an accounting problem except that it comes in the wake of Hindenberg Research's allegations of stock manipulation and accounting fraud and a problem by the SEBI is on right now.
That's it from me for today. See you tomorrow
