What Indian Companies Could Do For America

• <00:46> What Indian Companies Could Do For America? with Manjeet Kripalani
• <11:22> Goldman Sachs says India will record the largest increase in global market cap share by 2075
• <15:47> It's Raining IPOs
• <17:23> The Monsoon is here.

---

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 and it's Monday morning the 26th of June and I'm Govindraj Ethiraj coming to you from Mumbai, India's financial capital also host to the most expensive real estate in the country

Our Top Stories

- What Indian Companies Could Do For America?

- Goldman Sachs says India will record the largest increase in global market cap share by 2075

- It's Raining IPOs

- And It's Raining

What Can Indian Companies Do For America?

A much anticipated - and by all means successful -  economic and political visit by India's prime minister Narendra Modi to the United States has ended.

Wall-to-wall coverage has followed every step of the visit, including of course the address to the joint session of the US Congress on June 23, for the second time for PM Modi, an address which had economic overtones, including a mention of supply chains and the strengthening of it, partnerships in semiconductors, farming and finance.

Several deals were announced and you would have already heard of most of them. Some are significant, like the F414 military aircraft jet engine deal between General Electric or GE and Hindustan Aeronautics or HAL. India does not make fighter jet engines. Nassa and Isro will also collaborate for human spaceflight.

Elsewhere, Amazon announced it would bring in another $15 billion into India and Google said it would set up a global fintech operation at the GIFT City in Gandhinagar.

Now comes a few larger points and questions.

What did India benefit most from here, the hard or the soft power or put differently, which of these factors powered this partnership, including the presence of a highly influential diaspora in business and public life? And I found this interesting and relevant if you look at the future of the partnership because deals of course happen when heads of state don't meet as well, particularly if the underlying market attraction is strong.

The Business Standard's TN Ninan has argued that what is really working in the bilateral relationship is hard power, India's growing economic and military clout and the potential of its market.

Ninan refers to it but the somewhat larger significance of the fact that India has ordered 1,000 aircraft in six months' time did not quite strike me till now as one of the biggest manifestations of India's presence at the global economic table in 2023.

And then there is the military aspect, the Indian Ocean presence, the counter to China's expanding navy and so on.

But as Ninan points out, it would be a more truly Indian soft power if the best and brightest Americans came to study in Indian universities and then queued up to get Indian passports.

As things stand, Ninan points out, the most privileged Indians are sold on US universities, the opportunities in America's tech companies, the might of its financial system, the appeal of popular culture and then, my term here, the quality of life.

How could this change?

Well, there has been much said and written about the bilateral relationship in recent days but not so much on this relationship.

Manjeet Kripalani, executive director of Gateway House which works at the convergence of business and foreign policy and also former India bureau chief of BusinessWeek magazine, summed it up very well, including perhaps the sentiments of TN Ninan, when she said, India has to be a giver, more than a taker.

One example she mentioned, is why don't Indian companies endow more seats in foreign universities. Anyway, I caught up with her and began by asking her how she was viewing PM Modi's visit.

Meanwhile, among other impacts of general bonhomie, India will remove additional duties on 8 US products, including chickpeas, almonds, lentils and apples which were imposed in 2019 in response to the US increasing tariffs on certain steel and aluminium products, the Business Standard is reporting. The duty on the products ranged from 10 to 20%

The US is the largest trading partner of India. In 2022-23, the bilateral goods trade increased to USD 128.8 billion as against USD 119.5 billion in 2021-22.

Washington states' 1,400 apple growers are eagerly looking forward to entering the Indian market again, reports said.

Goldman's 2075 Predictions & Predictions In General

Trends in globalization have ebbed and flowed since at least the 12th century, when Genghis Khan secured commerce along the Silk Road and the cycles of business, technology and politics that shape economic growth are short, typically five years. As a result, any forecast that looks beyond the next cycle or two - five to ten years - is likely to be way off the mark.

Predictions that look 20 to 100 years into the future cannot possibly survive change in the intervening years. New economic competitors can rise, as China did in the early 1980s or as Eastern Europe did in the 1990s.
New technology can emerge.

When a country like Japan, China or India grows rapidly for a decade, analysts should be looking at not for reasons the streak will continue but the moment the cycle will turn.

This, so far, by the way, are the words of the well-known columnist and author Ruchir Sharma in his book 10 Rules of Successful Nations.

Sharma makes a seminal point in his book that it is hard to sustain rapid economic growth.

At the time he wrote this book, he was chief global strategist at Morgan Stanley Investment Management, this was written in 2016 and revised into a 2020 edition.

Finally, Sharma quotes psychologist Philip Tetlock who has put thousands of predictions to the test and in his book Superforecasting he presents evidence confirming that forecasts get less reliable the farther they reach into the future and they become no more accurate than random guesses beyond five years.

Now, with that backdrop in mind which I felt is important to keep in mind for everyone including myself since I do showcase quite a few distant forecasts, if nothing else, to start the week on a happy note, let's come to this week's far-out prediction.

Goldman Sachs has revealed long-term growth projections for the global economy, covering 104 countries out to the year 2075 including the key insight that it expects India to record the largest increase in global market cap share – from a little under 3% in 2022 to 8% in 2050, and 12% in 2075 – reflecting a favourable demographic outlook and rapid GDP per capita growth.

Broadly Goldman expects emerging market growth to continue to outstrip DM over the remainder of this decade (3.8% vs. 1.8%).

This is useful insight to store away and more near term.

For 2050 Goldman projects that the world's five largest economies (measured in US$) will be China, the US, India, Indonesia, and Germany.

By 2075, China, the US, and India are likely to remain the three largest economies and, with the right policies and institutions, seven of the world's top ten economies are projected to be EMs.

Goldman says it is converting its long-term GDP projections into estimates of future equity market capitalisation by leaning on the fact that equity market capitalisation-to-GDP ratios tend to increase with GDP per capita.

Given the convergence taking place in EM GDP per capita levels, this implies that EM equity assets are likely to grow more rapidly than GDP, it says.

Goldman says EM equities will outperform DM in the longer run, due to stronger earnings growth and, as risk premia fall, multiple expansion. However, the most important dynamic underlying EM capital market growth, says Goldman, is the equitisation of corporate assets, the deepening of capital markets, and the disintermediation that takes place as financial development proceeds (processes that do not, by themselves, imply EM equity outperformance).

Openness to trade and capital flows is a necessary condition for the successful development of capital markets. Of the many risks to our projections, we view the possibility that populist nationalism leads to increased protectionism and a reversal of globalisation as the most significant.

By the way, Sharma quotes Goldman Sachs researchers from earlier reports when he says that looking back 150 years, GS researchers found dozens of great stagnations, slumps that lowered a nation's average income, relative to its peers. Of these slumps, 90 lasted at least 6 years and 26 spanned more than 10 years. The longest lasted 23 years and struck India in 1930.

The impermanence of economic conditions means that one can never extrapolate current trends into the distant future.

It's Raining IPOs

Speaking of emerging market capital markets, it's raining IPOs with at least seven large and small IPOs lined up next week, according to a report in The Economic Times.

What struck me as I scratched the surface is that at least five of these companies' businesses are manufacturing-based and have been around for a while - a sign that the capital market itself is once again welcoming to a wider portfolio of businesses, including traditional manufacturing.

Moreover, most of these companies have been around for a while.

Pentagon Rubber which makes rubber conveyer and transmission belts has been around since 1969, the year man landed on the moon and the Boeing 747 was launched, just saying.

And Global PET, which makes PET stretch blow molding machines has been around for 25 years, though about a decade as a company.

And then there is a drone manufacturer Ideaforge which everyone is talking about and an electronics manufacturing company called Cyient DLM which mostly builds for others - though complex and sophisticated parts including those used in aircraft and satellites - but has been around for 30 years from what I could see.

Ideaforge is younger but not exactly a startup though people might be tempted to refer to it as one given the tech halo. It was set up in 2007, or 15 years ago, in IIT Bombay.

Rains Are Here

Speaking about raining IPOs, the real rains are here as well. Heavy rains hit Mumbai and Delhi on Saturday night as the monsoon apparently reached both cities together. Possibly, this was to make Dilliwalls feel better and less discriminated against.

The monsoons were two weeks late into Mumbai according to the Indian Meteorological Department and 2 days earlier into Delhi. This was a rare occurrence and last happened in 1961.

The southwest monsoon is active now and has covered many parts of the country. I did a delayed monsoon check with economist Madan Sabnavis in my Friday podcast last week and will do a catch-up on Wednesday most likely to understand whether we have made up the lost time.

When I say we, I mean the agricultural economy in specific and the macro economy at large.

Mumbai saw its usual share of flooded subways and flyovers, building collapses, including one in Vile Parle in the suburbs. And tragedy. Two men drowned after falling into a manhole of an overflowing drain in the city's north-central suburbs Saturday evening. Officials, the two men had been carrying out routine water flow tests.

The Santacruz observatory in Mumbai recorded 88 mm of rainfall between 5:30 pm and 7:30 pm on Saturday.

That's it from me, welcome the rains but do stay safe wherever you are and have a good week ahead.