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India Market Report - March 18 - Red Ribbon Asset management

India Market Report – March 2018

By | INDIA, News | No Comments

In a move designed to further boost overseas investment, India’s domestic exchanges took a significant step last month in deciding to cut off data feeds to overseas bourses, and to the Singapore and Dubai Exchanges in particular. The Finance Ministry in New Delhi quickly made clear that it supported the move, especially given significant negative impacts of trading in Indian derivatives over the last year which have been widely perceived as destabilizing domestic financial markets: particularly as this trading takes place outside the reach of India’s regulators. In that context, last month’s decision can properly be seen as the latest in a series of regulatory and supervisory initiatives taken on the subcontinent over recent years, each one designed to tighten up still further historic asymmetries in its markets. Far from being unduly protectionist, as some commentators have suggested, it can only be good news for overseas and domestic investors who wish to participate in the success of India’s burgeoning economy.

And there will also be a brand new home for India’s foreign investors: the new International Financial Centre in Gujarat (Prime Minister Modi’s home state), which offers execution with no taxes on either capital gains or transactions and no stamp duty either; it also offers dollar contracts which will effectively remove currency risk on derivatives trading (given transactions in that segment are regularly denominated in dollars); not to mention new, state of the art trading infrastructure as well. So far the new exchange has been surprisingly slow to gain traction (as most new exchange sare) but last month’s announcement should give it much needed shot in the arm.

And the Indian Government is unquestionably right to target overseas investment at the moment.

Take the news this month that US behemoths Blackrock, Oaktree Capital and Elliott Management have all three moved to increase their investment in the subcontinent’s ICT sector, each explicitly recognising the potential for further growth through India’s ongoing digital transformation. The concerted move reflects increased domestic spending on IT technologies so, perhaps inevitably, the sector is also attracting greater interest from overseas private equity funds as well, as indeed are other key areas in the economy at the moment, notably real estate.

On a macro scale, the Reserve Bank announced this month that India’s exports grew by 4.5% in February to USD 25.8 Billion, narrowing its trade deficit to USD 12 Billion, which may also go to explain the increase in returns on Indian Government Bonds reflecting increased demand from corporates and banks to fuel investment opportunities. The 10-year benchmark rate on Government Bonds rose from Rs 96.42 to Rs 96.83 while shorter Bonds (maturing in 2021) were trading at Rs 101.75 (up from Rs 97.81). Call rates on the Indian overnight money market were also up, reflecting a core strengthening in the value of the Rupee.

That combination of market resilience and progressively more robust regulation and compliance models makes it difficult to ignore the investment opportunities that India currently has to offer.

Red Ribbon Asset Management has placed Indian markets at the heart of its investment strategies since the company was founded more than a decade ago: priding itself on understanding more about India than virtually any other asset manager, with a team of more than a hundred expert analysts and advisers living and working on the ground in India’s key areas of economic expansion, seeking out the best and most profitable projects in the daily workings of its local markets. The Red Ribbon Private Equity Fund was launched last year to take full advantage of the resurgence in India’s Financial Markets.

 

 

Red Ribbon CEO, Suchit Punnose said:

Prime Minister Modi’s Government has introduced a series of initiatives that are likely to have a far-reaching impact on the economy. Everyone is familiar with Demonetisation, a bold and for the most part highly successful Programme to rid the subcontinent of its historic associations with unregulated and often illegal market activities. The new GST fiscal regime is equally well known: working progressively to unify markets across India’s vast territories, whilst at the same time reducing overall tax burdens and smoothing the previously over complicated process of Inter State trade.

Less well known perhaps are the equally important initiatives introduced to tighten up India’s regulatory and compliance structure. RERA was an important first stepping-stone in the process: clearing up beaureaucratic inefficiencies and often abusive hurdles to trade. And the Supreme Court has taken up the baton too, with its recently streamlined approach to dispute resolution, giving companies the certainty and assurance they need for effective decision making and removing at a stroke the sometimes sadly deserved reputation which the subcontinent had gained for judicial delay.

So all in all, India is a very different country today than it was even as recently as ten years’ ago. Investors are now much more likely to find Compliance, Legal and Regulatory structures which match Western models with which they are perhaps more familiar.

Last month’s decision by India’s Exchanges to dissuade offshore trading in Indian derivatives (a broadly unregulated activity) principally in the Dubai and Singapore markets, should properly be welcomed as part of this same process of Regulatory tightening. The markets can only be stronger for it and I am pleased that it signals in the strongest way that India’s markets, newly regulated and thriving, are very much open to business for foreign investors.

 

Growth Economy India World Leader - Red Ribbon Asset Management

As Good As It Gets: The World’s Leading Growth Economy

By | INDIA, News | One Comment

Goldman Sachs have just published their Annual Global Review “Global Economics Analyst: As Good as it Gets and it includes some very illuminating predictions for the next two years and, in particular, what lies in store for the small but influential set of Growth Markets which together make up the likely powerhouse of future economic growth. Looking at that small group of countries, Goldman’s are “most positive”, more positive than they are about any other economy in the world, about India where they are  projecting GDP growth of 8.0% in 2018 rising to a staggering  8.3% by 2019.

Those figures might not mean very much on the page (or screen) but compare them with the equivalent figures for with the United States where, even with the kick-start of recent fiscal reforms implemented by the Trump Administration, the forecast percentages are 2.5% (2018) and 1.8% (2019). The United Kingdom comes in at an even more paltry 1.3% and 1.6% for the same two years.

This stark dichotomy between Developed Markets like the United States and the United Kingdom (DM) and Growth Markets like India (GM), is also borne out by Goldman’s individual sector forecasts (contained in the same report), which project an average 5.6% growth across GM for 2018 against a mere 2.3% for DM over the same period; and GMs are also expected to strengthen still further into 2019 with the equivalent average figures being 5.7% against 1.9% for DM (nearly three times as much).

All of this graphically underpins one of the key portfolio strategies by Red Ribbon Asset Management adopted when it was founded more than a decade ago: that no investment portfolio can be considered properly balanced unless at least 10% of its holdings are deployed in Growth Markets and, of course, that means India in particular, which is now likely to return GDP growth at figures nearly double that of its other Emerging Market counterparts, never mind seriously outstripping its closest DM competition).

But having said all of that, GM and DM Markets are still much more connected than you might think: shocks in one can still cause turbulence in the other.

Take,for example, the conventional view that Growth Markets are  much more at risk than other economies from tighter Federal Reserve Policies in the United States, having historically partially fixed exchange rates to the US Dollar with the result that they are constrained to adopt tighter money each time the Fed hikes its rate (as it has just done of course). This perceived vulnerability was graphically illustrated by the severe tightening in Chinese currency markets over the last decade in response to hawkish Fed shocks in the period up to 2016 (and in the light of the dollar peg which was in place over the same period).

So, taking just that one example, what does this underlying feature of connectivity  mean in practice for the future Growth Markets and India in particular? Does it give rise to any additional vulnerability.

Well, In india’s case the answer would seem to be “no”.

Goldman’s Report is “optimistic” that India will be able to weather any such currency storms better than it’s GM counterparts because, following the dollar adjustments of recent years, it is “much more resilient…enabling it to cope better with a gradually tighter Federal Reserve policy”; and in major part that is because of the financial and infrastructure policies of Prime Minister Modi’s Government which have made it much more resilient and shock resistant than its near neighbours in the GM coterie.

So, good news all round…. Perhaps, to adopt Goldmans’ phrase, as good as it gets with India now seemingly set to harvest the benefits of being the leading GM economy, with little or any of of the drawbacks.

It should all make for a happy new year…

 

Red Ribbon CEO, Suchit Punnose said:

Red Ribbon has long held the view that no investment portfolio can be considered properly balanced unless at least 10% of its holdings are deployed in Growth Markets and, of course, for us that has always meant India in particular. So it is encouraging to learn that the latest Goldman Sachs Report on global economic trends (appropriately named “As Good as it Gets”) is still recording historic GM growth at more than double that of Developed Markets and it also forecasts that the disparity will grow wider between the two sectors (in favour of Growth Markets) over the next two years.

I am particularly fortified to read the reports conclusions on India which it finds to be much more resilient than its GM counterparts when it comes to global economic shocks such as that we have just experienced with the Fed tightening dollar rates.

That’s good to hear, even if it’s something some of us have long suspected…

Impact Investment and Growth Markets: A Changing Paradigm

By | INDIA | One Comment

Red Ribbon Asset Management is making its name at the cutting edge of “Mainstream Impact Investment”, which is a strategy aimed at generating competitive rates of return from businesses with strong growth potential, that not only create value for society, but also strive to reduce the environmental impact of doing so. Recent events have shown that Red Ribbon is certainly not alone in its commitment to combine asset growth with positive social and environmental impacts.

Sir Ronald Cohen, Chairman of the G8 Impact Investing Committee, announced in Mumbai last month that “Impact Investments” in India, which are primarily focused on social interventions, have exceeded $500 Million in 2015 and were expected to rise to $1 Billion by 2020: “Impact Investing is disrupting traditional philanthropy and has a revolutionary promise of becoming a $5 trillion global market, of which $1 trillion will be in India by 2050. With recognition and support from the Indian Government, India can be a world leader in this sector”.

The statistics certainly bear out Sir Ronald’s optimism: impact investments have been growing at a rate of 24% in India year on year since 2007 (socialimpactinvestment.org/).  Furthermore, Impact Investment Funds in Emerging and Growth Markets have also returned 9.1% to investors (as against 4.8% for Developed Markets) according to the Impact Investment Council of India (IIC: iiic.in/impact-investors/).

So exactly how is global business responding to this changing Paradigm?

Some of the answers are to be found in the recent Ernst & Young (EY) Environmental and Social Governance (“ESG”) report, which concluded that there is a strong (and strengthening) connection between non-financial performance data and investor decision-making.   Much of the impetus for more effective and better ESG reporting appears to be coming from the “collective voice of the investor community”, which continues to be the  “strongest advocate” for change in favour of impact investment strategies. In particular, the use of clear and transparent ESG measures is enabling investors to focus on the long-term, the underlying value of the business rather than on short-term gains  (ey-nonfinancial-performance-may-influence-investors.pdf).

The EY report is just one of many, that see a direct correlation between ESG performance and the financial performance of companies in the equities markets.  A report released recently by Barclays (“Sustainable investing and bond returns”), which was the first of its Impact Series, also drew a similar conclusion for Securities on the Bond markets.  In essence what all these reports allude to is the correlation between financial and non-financial factors in businesses with underlying strategies for managing ESG factors.

The conclusions reached in the EY report and others, resonate closely with Red Ribbon’s portfolio management strategies, a central component of which involves assessing the extent to which a business is able to reflect (dispassionately and objectively) on the impacts of its commercial operations by engaging with its internal and external stakeholders.
A business will ultimately be stronger in the long-term if it conforms to a collaborative model of transparent engagement with its stakeholders.  It is not just a matter of regulatory compliance, it is a sound basis for solid and sustainable growth, which is why “Mainstream Impact Investment” is a key component of Red Ribbon Asset Management’s success in securing strong returns for its investors with sustainable and measurable impacts on the community and on the environment.

 

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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