India A Bright Spot For Global Companies As More Investments Pore In, From Japanese Banks, Samsung and Jefferies All Eyeing India’s Appetite For Growth Potential; Why Everyone In Business Is In Love With India?

India emerging destination from Japanese Banks, to Samsung to Jefferies and more…

In an ever-changing global macroeconomics characterized by volatility, traditional paradigms are shifting; India, previously viewed as averse to certain sectors, stands positive to attract increased investments from global corporations and investors.

India surpassed China to become the world’s most populous nation, further solidifying India’s position as a rising star in the global economy and has drawn attention to whether India will leverage its demographic advantage to surpass China in other aspects of economic prowess.

The rationale for investing in India, with its population of 1.4 billion, is evident, especially considering recent geopolitical developments; even as Western leaders seek to enhance economic ties with nations sharing similar democratic values, India, as the world’s largest democracy, stands to benefit.

Previously, many nations and businesses heavily relied on China for their economic interests. However, escalating tensions between the West and Beijing are prompting a shift towards diversification, with India emerging as a favorable alternative.

India’s “demographic dividend,” characterized by the potential economic growth stemming from its sizable working-age population, presents a significant opportunity.

Additionally, its expansive consumer market and availability of affordable labour are attracting increased attention from global brands and trade partners.

Japanese Banks And Indian Companies
To illustrate the above, IndusInd International Holdings Limited (IIHL), a subsidiary of the Hinduja Group, is in talks with Japanese banks to secure funding of up to ₹8,000 crore for the acquisition of Reliance Capital, formerly owned by Anil Ambani.

This move comes ahead of the May 27 deadline set by a bankruptcy court.

The association of Reliance Capital with Nippon Life, a joint venture partner, is an advantage that offers reassurance to Japanese banks as together, they operate a life insurance venture in India.

The potential funding from Japanese banks could be obtained at a considerably lower interest rate compared to other lenders previously approached by IIHL.

While discussions with Mizuho, SMBC, and MUFG for five-year loans at an interest cost of 8-9% per annum are underway, the funding arrangement is yet to be finalized.

Although IIHL may secure a substantial portion of the required funding through this channel, the Hinduja family might need to inject equity to cover any remaining shortfall.

Japanese financiers have been expanding their presence in India, displaying a willingness to take on greater risk by providing local funding. Previously, they supported Indian corporations with foreign currency loan requirements from their overseas balance sheets.

Notably, Mizuho, MUFG, and SMBC have made significant capital injections into their Indian operations in recent years.

MUFG pumped ₹3,000 crore into its Indian banking operation in September 2022. SMBC also pumped in ₹4,458 crore in 2020 into its India business, doubling the total committed capital here.

Right Time To Be In India
Likewise, Jefferies CEO Richard Handler finds India’s current scenario immensely promising, emphasizing to his team that they are positioned in the right country at the opportune moment.

He expresses his enthusiasm, stating, “It’s impossible to be here and not feel excited. The abundant human capital, intelligence of the populace, and adept leadership within conglomerates contribute to this sentiment.”

India’s flourishing capital markets, growing domestic consumption, and a flourishing credit cycle, supported by consistent policies, further sweeten its appeal.

Drawing comparisons with the United States, Handler asserts that India is on a similar trajectory, which will fortify its financial markets.

He anticipates increased transparency, advancements in technology, rigorous regulatory supervision, a robust legal framework, and greater accountability to shareholders.
Although, according to him, these transformations require time, many foundational elements are already in place and are expected to evolve further.

Handler notes that interest rates have stabilized, particularly with inflation under control, prompting sellers to adopt more realistic pricing strategies. Private equity firms, sitting on substantial reserves, are displaying heightened aggression in their acquisitions.

This has led to an uptick in mergers and acquisitions activity, with transactions gaining momentum.

In India, Jefferies has been entrusted with various mandates, including the sale of manufacturing companies and assisting in the divestment of shadow banks.

Since January 2022, they have facilitated clients in raising over $11 billion through equity capital markets via IPOs, QIPs, and noteworthy block trades.

Handler acknowledges that the pace of activity may not match that of 2021 when liquidity was abundant and stimulus measures were widespread.
However, he remains optimistic about the ongoing developments and the future prospects of the Indian market.

Samsung’s New Feat
Meanwhile, Samsung India is on the brink of achieving another significant milestone in its smartphone business as it expects to surpass Rs 80,000 crore in total smartphone revenue for the fiscal year.

Samsung‘s remarkable performance is fueled by a robust 12% growth in sales volume, which stands out amidst a subdued domestic market.

The company’s sales surged, primarily driven by a shift towards premiumization, resulting in a notable 22% increase in average handset selling prices, surpassing the industry average of 17%.

Akshay Rao, the General Manager of Mobile Experience Business at Samsung India, noted a rise in the share of no-cost EMI purchases from 54% to 60%, with the tenure for such schemes extending to 18 months from the previous 12 months.

“In terms of value, our domestic mobile phone sales have grown by 12%, outpacing the industry’s growth rate of 8-10%. Our objective is to sustain this growth momentum, primarily by focusing on 5G handsets. For example, in 2023, approximately 60% of our smartphone shipments to India were 5G-enabled, a figure we aim to increase to 75% this year,” stated Rao.

An industry insider mentioned that Samsung’s mobile phone exports might have slowed down this year due to global economic downturns, leading consumers to curtail spending in various markets, prompting adjustments in production by handset manufacturers, including Samsung.

According to filings submitted to the Registrar of Companies, Samsung India’s mobile phone business generated revenue of Rs 70,292 crore (including exports and domestic sales) in the fiscal year 2022-23, surpassing the standalone revenues of prominent companies like ITC and HUL.

The filings revealed that Samsung India recorded exports worth Rs 37,486 crore, encompassing handsets, components, and other electronic products.

However, specific details regarding product-wise export sales were not disclosed by Samsung.

Counterpoint Research reported that Samsung, outperforming Chinese rivals, secured the top spot in India’s smartphone market in 2023 by unit shipments, reclaiming its position for the first time since 2017. Samsung concluded the year with an 18% market share, closely followed by Vivo, Xiaomi, and Realme.

Forging Closer Ties
The Indian government has pursued the signing of free trade agreements in an effort to bolster the industrial sector and enhance exports, a move that has been warmly embraced worldwide.

Since 2021, India has successfully concluded agreements with Australia, the United Arab Emirates, and Mauritius. Likewise, negotiations are underway for deals with the European Union, the United Kingdom, and Canada.

In recent months, the United States and India have taken strides to fortify their relationship, particularly in defense and technology, in response to the escalating assertiveness of China.

The White House initiated a partnership with India aimed at enhancing competitiveness against China in areas such as artificial intelligence, military technology, and semiconductors.

In February 2023, Air India made a significant purchase of over 200 aircraft from Boeing, marking the American planemaker’s third-largest sale ever.

President Joe Biden lauded the strength of the US-India economic partnership and expressed optimism about deepening cooperation to address global challenges jointly.

“Together with Prime Minister Modi, I anticipate further strengthening our partnership as we navigate shared global challenges,” remarked President Biden.

Is India Witnessing an Economic Miracle?
Beyond geopolitical considerations, India’s economic and demographic fundamentals are attracting significant business interest.

According to the International Monetary Fund, the South Asian nation is projected to outpace all major emerging and advanced economies this year, with a GDP growth forecast of 5.9%.

In contrast, Germany and the UK are expected to experience stagnation, while the United States is anticipated to achieve a modest growth rate of only 1.6%.

According to assessments by Capital Economics, India’s workforce could soon surpass that of China, with a working-age population exceeding 900 million, based on 2021 data from the Organisation for Economic Cooperation and Development (OECD).

The Biden administration has enthusiastically embraced India’s anticipated growth trajectory. However, India’s remarkable GDP and population growth mask a growing concern.

Challenges For India
Kaushik Basu, an economics professor at Cornell University, noted that while India’s overall economic indicators, such as GDP growth and national income, appear favorable, there are underlying issues.

Basu highlighted the persistent challenges faced by the lower segments of society, particularly in terms of employment warning that India’s unemployment rate, currently at 7.1%, remains elevated compared to pre-pandemic levels.

Some analysts have described the employment situation as a potential time bomb, which could worsen as the population continues to expand.

Economists argue that expanding manufacturing capacity presents a clear solution to the employment crisis.

Thamashi De Silva, an assistant economist at Capital Economics, emphasized the need to develop a globally competitive and labor-intensive manufacturing sector to unlock India’s demographic potential.

As of 2021, manufacturing represented less than 15% of India’s economy or employment, a relatively small proportion compared to global standards, as noted by Shah from Capital Economics.

Fortunately, the increasing demand for additional assembly lines coincides with companies actively seeking out new production hubs.

Apple (AAPL) has significantly expanded its production operations in India following disruptions in its supply chain in mainland China.
During his recent visit, CEO Tim Cook pledged further investments across India.

Similarly, the head of Foxconn also made a visit to India and held discussions with Prime Minister Modi.

The Taiwanese electronics manufacturer, a key supplier to Apple, experienced rapid growth in its Indian manufacturing operations and is now looking to expand further.

The anticipation surrounding Apple’s increased production and investment in India has raised hopes of establishing a robust electronics ecosystem in the country, thereby encouraging other multinational companies as well, according to De Silva.

More…
While India stands to benefit from companies diversifying their supply chains away from China, Alexandra Hermann, a lead economist at Oxford Economics, highlighted “several obstacles” that could hinder this transition.

These include stringent labor laws, high import duties, and logistical complexities.

However, despite steady growth in India’s tech exports, other locations such as Taiwan and Vietnam have thus far reaped greater benefits from the quest for alternative import sources.

Despite improvements in infrastructure, the World Bank reports that India still grapples with logistics costs higher than those in China, South Korea, Japan, Malaysia, and Thailand.

Hence, In a nutshell, as Basu from Cornell University puts it – there is a crucial need for the government to formulate a comprehensive plan to absorb surplus labour through the creation of manufacturing jobs.

“If executed effectively, this could yield dividends,” he remarked. “However, failure to do so could pose significant concerns for the Indian economy.”