India’s growth capped below China’s historic levels, Morgan Stanley - Business Guardian
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India’s growth capped below China’s historic levels, Morgan Stanley

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According to Morgan Stanley’s chief Asia economist, Chetan Ahya, India is unlikely to achieve the remarkable 8%-10% economic growth rates that China accomplished over the long term. Ahya predicts India’s economy will likely grow steadily at a rate of 6.5%-7% in the long term. He attributes this projection to constraints such as inadequate infrastructure and a low-skilled workforce, which hinder India’s growth potential. Despite these challenges, Morgan Stanley remains optimistic about India’s prospects, comparing the current expansion to the mid-2000s boom fuelled by rising investment.

Ahya acknowledges India’s growing influence on the global stage, citing increased capital flows and a rising share of global foreign direct investment. However, he believes that India’s manufacturing sector is unlikely to compete significantly with China in the near future due to China’s advanced manufacturing capabilities and diversified industries.

India recorded a growth rate of 8.4% in the final quarter of 2023, although concerns have been raised about the accuracy of the data. Government officials anticipate a 7% growth rate in the upcoming fiscal year, following an expected expansion of 7.6% in the current financial year.

Regarding monetary policy, Ahya suggests that strong growth may affect the timing of interest rate cuts by the Reserve Bank of India (RBI). While Morgan Stanley’s base case anticipates a “shallow rate cut cycle” starting in June, unexpected growth outcomes could lead to a delay or potential cancellation of rate cuts by the RBI, particularly considering the persistent inflationary pressures observed in recent data.

Ahya’s insights shed light on the nuanced dynamics shaping India’s economic trajectory. Despite India’s aspirations for robust growth, structural constraints present formidable challenges. While the nation has made strides in attracting investments and expanding its global footprint, it faces significant hurdles in infrastructure development and skill enhancement. These limitations temper expectations for a rapid acceleration in economic expansion.

Nevertheless, Ahya’s remarks underscore the resilience of India’s economy and its capacity for sustained growth. The recent performance, reminiscent of the mid-2000s boom, reflects India’s potential to capitalize on investment opportunities and drive economic momentum. Looking ahead, India’s journey towards economic prominence will likely be characterized by incremental progress rather than meteoric rises.

While it may not replicate China’s unparalleled growth rates, India’s ascent on the global stage remains a formidable force to reckon with. In a nutshell, while India’s growth trajectory may not match China’s historical achievements, it is poised for steady advancement in the years to come.

By addressing structural bottlenecks and fostering an environment conducive to investment and innovation, India can chart a course towards sustainable and inclusive growth, solidifying its position as a key player in the global economy.

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Business News

India Inc’s credit boosted by Domestic demand, govt investment: ICRA

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ICRA’s latest report highlighted India Inc’s credit profile in the 2023-24 fiscal year, citing domestic consumption demand and infrastructure.

ICRA, a leading rating agency, reported on Monday that India’s domestic consumption demand, government infrastructure spending, and robust balance sheets provided vital support to the credit profiles of businesses in the fiscal year 2023-24. Despite challenges such as increased borrowing costs, sluggish exports, and global uncertainties, the credit landscape remained relatively stable. Throughout the fiscal year, ICRA observed a trend of upgrading two entities for every one downgraded, extending the momentum initiated in the previous fiscal year.

Notably, sectors such as aviation, hospitality, automotive, and banking witnessed rating upgrades, primarily driven by favorable industry conditions. Despite facing numerous challenges including inflation, higher borrowing costs, adverse weather conditions, and global conflicts, Indian businesses navigated through the obstacles with resilience. The sustained domestic consumption demand, government investments in infrastructure, and strong financial positions of companies provided a buffer against external pressures.

K Ravichandran, ICRA’s Chief Rating Officer, highlighted that most rating upgrades were attributable to company-specific factors such as market expansion, improved cost structures, and strengthened balance sheets through equity infusion. ICRA expressed optimism about the hospitality sector’s prospects for 2024- 25 while identifying challenges in sectors like chemicals, diamonds, and bulk tea. Moreover, the fiscal health of businesses showed significant improvement, with instances of defaults declining to five in FY24 from 22 in FY23 and 42 in FY22.

Despite projecting a slightly lower GDP growth of 6.5% for the current fiscal year compared to the previous year’s 7.6%, ICRA remains positive about corporate resilience amid rising borrowing costs. The asset quality of banks and non-banking financial companies (NBFCs) reached a decade-long peak, with profitability and capitalization indicators expected to remain robust in the near term. Ravichandran emphasized the importance of regulatory measures taken by RBI and Sebi in strengthening the financial system and capital markets. However, uncertainties related to monsoon patterns and geopolitical dynamics could pose challenges moving forward.

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Tech

Tech Giants investing bn in startups due to generative AI FOMO

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Due to regulatory challenges, tech giants have reduced their acquisition activities but are still pouring billions into promising ventures. Amazon’s recent $2.75 billion investment in AI startup Anthropic exemplifies this trend, showcasing the ongoing rush towards AI investments among major tech players. Anthropic is the developer behind the AI model Claude, which competes with GPT from Microsoft-backed OpenAI, and Google’s Gemini. Along with Meta and Apple, they’re all racing to integrate generative AI into their vast portfolios of products and features to ensure they don’t fall behind in a market that’s predicted to top $1 billion in revenue within a decade.

In 2023, investors pumped $29.1 billion combined into nearly 700 generative AI deals, an increase of more than 260% in value from the prior year, according to PitchBook. A significant chunk of that money was strategic, in that it came from tech companies rather than venture capitalists or other institutions. Fred Havemeyer, head of U.S. AI and software research at Macquarie, said a fear of missing out is one factor driving their decisions.

“They definitely don’t want to miss out on being part of the AI ecosystem,” Havemeyer said. “I definitely think that there’s FOMO in this marketplace.” The hefty investments are necessary because AI models are notoriously expensive to build and train, requiring thousands of specialized chips that, to date, have largely come from Nvidia. Meta, which is developing its own model called Llama, has said it’s spending billions on Nvidia’s graphics processing units, one of the many companies that’s helped the chipmaker bolster year-over-year revenue by more than 250%.

Whether going the building or investing route, there are a finite number of companies that can afford to play in the market. In addition to developing the chips, Nvidia has emerged as one of Silicon Valley’s top investors, taking stakes in a number of emerging AI companies, partly as a way to make sure its technology gets widely deployed. Similarly, Microsoft, Google and Amazon sometimes offer cloud credits as part of their investments. In the Amazon-Anthropic deal announced on Wednesday, the two companies said they’ll work closely together in a variety of ways.

Anthropic will be using Amazon Web Services for its computing needs as well as Amazon’s chips. Anthropic’s models will be distributed by Amazon to AWS customers. Earlier this month, Anthropic launched Claude 3, its most powerful model and one that it says lets users upload photos, charts, documents and other types of unstructured data for analysis and answers.

Microsoft got into the business of generative AI investing earlier, putting $1 billion into OpenAI in 2019. The size of its investment has since swelled to about $13 billion. Microsoft heavily uses OpenAI’s model and offers open source models on its Azure cloud. Alphabet is playing the part of builder and investor. The company has refocused much of its product development on generative AI, and its newly rebranded Gemini model, adding features into search, documents, maps and elsewhere. Last year, Google committed to invest $2 billion in Anthropic, after previously confirming it had taken a 10% stake in the startup alongside a large cloud contract between the two companies.

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Economic

China’s manufacturing up for first time in 6 months

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China’s manufacturing activity expanded in March for the first time since September, a sign that the world’s second-largest economy is stabilizing. The official manufacturing purchasing managers index this month rose to 50.8 from 49.1 in February, the National Bureau of Statistics said in a statement Sunday. That beat the median forecast of 50.1 by economists in a Bloomberg survey and was the best reading since March last year. A gauge of non-manufacturing activity climbed from the previous month to 53, compared with an estimate of 51.5. A reading above 50 suggests an expansion from the previous month, while a figure below that denotes contraction.

The PMI figures are the first official data available each month to provide a snapshot of the health of the Chinese economy. The readings suggest that the country’s growth recovery has maintained traction after a solid start to the year. They may give policymakers more time to assess the impact of previous stimulus measures before taking further easing action. China has set a target to increase gross domestic product by about 5 per cent this year, which many economists regard as elusive, given the protracted slump in the property sector and persistent deflationary pressures.

The authorities have released more long-term liquidity into the banking system this year to spur lending, with central bank officials hinting at a potential further cut to the amount of cash banks have to keep in reserve. They have also expedited central government spending to support infrastructure investment and pledged to provide funds to encourage consumers and businesses to replace old goods, including cars and home appliances.

Chinese President Xi Jinping acknowledged challenges the domestic economy faces in a Wednesday meeting with a group of US business leaders in Beijing but expressed confidence in overcoming them. The sit-down with executives including Blackstone Inc.’s Stephen Schwarzman and Qualcomm Inc.’s Cristiano Amon was part of officials’ efforts to restore foreign investors’ confidence in the Asian giant as inbound investment slowed.

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Business News

IndiGo CEO: Indian aviation market sees robust competition

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There is healthy and tough competition in the Indian market, which is also price sensitive, the country’s largest airline IndiGo’s chief Pieter Elbers said and emphasized that there is an enormous demand for travel. At the helm of the airline having a domestic market share of little over 60 per cent and more than 360 aircraft in its fleet, Elbers also mentioned that overall price levels in India are “very very competitive”, something that he thinks one should take “as part of the change in India itself and the diversity of India”.

While air traffic continues to rise and airlines expand their operations by connecting new destinations, there are also concerns in certain quarters about airfares being higher, especially during peak seasons. Air ticket prices in the country are deregulated, and fares are mostly a function of supply and demand. In a recent interview with, Elbers said there is healthy and tough competition in the Indian market.

“Indian consumers are really eager to travel, but it is also a price-sensitive market. What I see is that whenever a new route is announced, there is enormous demand from consumers to travel,” the IndiGo CEO said. The country is one of the world’s fastest-growing civil aviation markets. On average, the number of daily domestic air traffic is around 4.3-4.5 lakh, and domestic airlines carried more than 15.20 crore passengers in 2023. “India is indeed a price sensitive market, and we see some fluctuations in the prices… the natural fluctuation of fares, we see it for hotels, we see it for other businesses and airlines as well.

“If you look at the overall price level in India, it is very very competitive, if not low, compared to some other parts of the world. I think you should take it as part of the change in India itself and the diversity of India,” Elbers said. According to travel portal Cleartrip, airfares are likely to remain higher in the short term and up to 15 per cent higher till May compared to the year-ago period. “Due to the ongoing supply chain and engine issues, there is a muted outlook on the capacity addition. This will lead to a high-fare environment for domestic travel. We’re running at 15 per cent higher fares than last year in March. A similar trend is expected in April. Both are compared to last year,” Cleartrip CEO Ayyappan Rajagopal said. Earlier this month, Akasa Air Founder and CEO Vinay Dube said that airfares in India are incredibly affordable.

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Business News

RIL’s $125B Capex over decade drives expansion surge

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Reliance Industries Ltd has made substantial investments exceeding USD 125 billion over the past decade, primarily focusing on the expansion.

A recent report reveals that Reliance Industries Ltd has invested over $125 billion in the past decade, primarily focusing on extensive expansions in its hydrocarbon and telecom sectors. Looking ahead, the conglomerate is expected to shift towards less capital-intensive ventures in retail and upstream new energy over the next three years, marking the end of prolonged and rigorous capex cycles in hydrocarbons and telecom.

“The company has invested nearly $ 30 billion between FY13-18 to increase scale, integration and cost competitiveness of the O2C (oil to chemical) business, and close to $ 60 billion between FY13-24E in 4G/5G capabilities to create a high-growth telecom business,” Goldman Sachs said in a deep dive report on Reliance. With the pan-India 5G rollout now likely completed and potential telecom tariff hikes ahead, it expected the telecom business to become a strong free-cash-flow (FCF) generation business alongside current cash cow O2C (which comprises its mega oil refinery and petrochemical complexes). “We believe the businesses RIL is investing more in the next 3 years (retail and upstream new energy) are relatively less capex heavy, higher in returns and have a shorter gestation period,” it said.

A refining or petchem facility would usually take at least five years to start up (construction and ramp up time) versus about two years for an integrated polyto-module solar facility and 6-12 months to ramp up a retail store. With the pan-India 5G rollout now likely completed and potential telecom tariff hikes ahead, it expected the telecom business to become a strong free-cash-flow (FCF) generation business alongside current cash cow O2C (which comprises its mega oil refinery and petrochemical complexes).

“We believe the businesses RIL is investing more in the next 3 years (retail and upstream new energy) are relatively less capex heavy, higher in returns and have a shorter gestation period,” it said. A refining or petchem facility would usually take at least five years to start up (construction and ramp up time) versus about two years for an integrated polyto-module solar facility and 6-12 months to ramp up a retail store.

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Business News

Meta phases out Facebook news tab amid content scale back

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Meta will be sunsetting Facebook News in early April for users in the US and Australia as the platform further deemphasizes news and politics. The feature was shut down in the UK, France and Germany last year. Launched in 2019, the News tab curated headlines from national and international news organizations, as well as smaller, local publications. Meta says users will still be able to view links to news articles, and news organizations will still be able to post and promote their stories and websites, as any other individual or organization can on Facebook.

The change comes as Meta tries to scale back news and political content on its platforms following years of criticism about how it handles misinformation and whether it contributes to political polarization. “This change does not impact posts from accounts people choose to follow; it impacts what the system recommends, and people can control if they want more,” said Dani Lever, a Meta spokesperson. “This announcement expands on years of work on how we approach and treat political content based on what people have told us they wanted.” Meta said the change to the News tab does not affect its fact-checking network and review of misinformation. But misinformation remains a challenge for the company, especially as the US presidential election and other races get underway. “Facebook didn’t envision itself as a political platform. It was run by tech people. And then suddenly it started scaling and they found themselves immersed in politics, and they themselves became the headline,” said Sarah Kreps, director of the Tech Policy Institute in the Cornell Brooks School of Public Policy who studies tech policy and how new technologies evolve over time.

“I think with many big elections coming up this year, it’s not surprising that Facebook is taking yet another step away from politics so that they can just not, inadvertently, themselves become a political headline.” Rick Edmonds, media analyst for Poynter, said the dissolution of the News tab is not surprising for news organizations that have been seeing diminishing Facebook traffic to their websites for several years, spurring organizations to focus on other ways to attract an audience, such as search and newsletters. “I would say if you’ve been watching, you could see this coming, but it’s one more very hurtful thing to the business of news,” Edmonds said.

News makes up less than 3 per cent of what users worldwide see in their Facebook feeds, Meta said, adding that the number of people using Facebook News in Australia and the US dropped by over 80 per cent last year. However, according to a 2023 Pew Research study, half of US adults get news at least sometimes from social media. And one platform outpaces the rest: Facebook. Three in 10 US adults say they regularly get news from Facebook, according to Pew, and 16 per cent of US adults say they regularly get news from Instagram, also owned by Meta

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