There has been a lot of discussion in the last week around the Urjit Patel’s (Governor of the Reserve Bank of India) decision to reduce interest rates by 25bps. Over the past few months, there has been much debate as to, not if but when, this will be done. Given it’s the first time Patel has sat at the head of the table on the Monetary Policy Committee (MPC), many didn’t expect such a bold move/statement. At least this proves he is his own man and is willing to make decisions even when he could have hidden behind the fanfare of his first MPC. Patel’s predecessor, Raghuram Rajan, wasn’t keen to reduce rates towards the end of his tenure but given Patel’s pro-growth approach, there should be further positive times ahead. The IMF have recently released a report stating they are bullish on the Emerging Markets and especially on India, in which incidentally, they have said IMF now expect India to grow 7.6% in both 2016 and 2017 – this represents an upward revision from 7.4%. Interestingly they have cited inflationary pressures which need to be kept an eye on in India but I don’t think Patel will be too worried at this stage about that, as he seems more concerned with growing the economy rather than curbing inflation. As you may have read there has been some recent tension between India and Pakistan. However, given the information at hand, we don’t believe this will lead to anything further. The World Economic Forum (WEF) shares this view and chose rather to concentrate on the structural problems India needs to address in order to build on the good work being done by the RBI and move the country to the next level of development. Add to that the elbow room being afforded to Finance Minister, Arun Jaitley, through government revenue intake and falling deficit (among others), and the outlook looks rather decent.
On the back of the positive outlook by these global bodies, it’s important to understand how businesses and sentiment is on the ground. Foreign businesses, like American brand Aéropostale, are trying to tap into the India which promises to be the world’s youngest emerging economy by 2020. Not difficult to see they believe “India will prove to be the trump card”. Small and Medium Enterprises (SMEs) from China are also looking to invest in India to take advantage of lower costs of labour. This sentiment spans across multiple sectors and represents an additional dimension to China’s investment into India which to now has been dominated through larger players like Alibaba and Foxconn. What is attracting outsiders to India is the potential of tapping into an ever growing educated and skilled workforce but also the growing middle class. No more exemplified than by the rise of the neo middle class.
The ecosystem we just can’t ignore is, of course, the start-up world. On the back of the RBI relaxing Foreign Direct Investment (FDI) into start-ups, they have gone a step further and will now allow start-ups to raise up to $3 million from overseas investors through External Commercial Borrowings (ECBs). Add to this the circa £1 billion government fund to provide capital for start-ups and it seems clear the sector has great support from the powers that be. Most of us know by now the largely increasing internet community in India is spawning from the adoption of smartphones. When you then hear world records are being set by Reliance Jio in enrolling 16 million subscribers in the first month of its 4G rollout – one simply can’t ignore just how much potential there is. To put the growth and size into perspective just consider a single silo, such as Internet of Things (IoT), and Nasscom’s expectation of that market reaching $15 billion by 2020. I ask you; how can one not be excited?!
Now for some interesting news from around the world. Motorola and Google both launched new smartphones last week. Motorola released two sizes of their modular smartphones specifically for the Indian market. Google, on the other hand, launched their much-anticipated Pixel phones coined as being the first phone ever to be made ‘inside and out’ by the tech behemoth. Of course, India is dominated by Android smartphones so it won’t be surprising to hear it will be released in the country this week. What will be interesting to see is if the price point is a deterrent to even the most loyal of markets. As can be expected the phones are packed with lots of features including Google Assistant, Unlimited Photo and Video Storage, and 24/7 live support. Moving to some acquisition stories and in a recent post, I mentioned there were rumours that Walmart had held discussions with Flipkart. Well, last week Walmart decided to double their stake in China’s JD.com which shows their aggressive approach to investment isn’t showing signs of slowing down anytime soon. Finally, it seems Netflix is soon to be acquired by one of Disney, Amazon or Apple. This is a really interesting story and definitely worth a read as it compares the merits of each potential acquirer. One question that comes to my mind is if we will see more and more household names in the world of tech being (almost) forced to sell as they become hamstrung by their own strategies and growth?
Author: Dishang Patel