What are multi-excavator Indian stocks for 2018

India in crisis: entry opportunities for long-term investors

Several industries and corporations are in a deep crisis at the beginning of 2020. In addition, a blatantly wrong decision by Narendra Modi's government is causing an uproar among the population. By Peter Schweizer

The country caught a cold. On the one hand there is the ominous winter weather in the Ganges plain, which runs through the subcontinent from west to east. At New Year's, the temperatures in the 28 million metropolis of Delhi were two degrees at night, the lowest level since 1901. Many people in the capital and the surrounding area, where houses usually have no heating, suffered from the cold.

On the other hand, the economy in the Republic of India has also cooled significantly. The world’s economy, which is now the third largest in terms of purchasing power parity, unexpectedly slipped into a crisis within a few months. Officially, growth is still intact - according to the International Monetary Fund it was a good six percent in 2019 - but if you believe "whispering figures", it could currently only be around 4.5 percent. From a European perspective, that may sound like a dynamic upswing. But that is not enough for India, where the population is growing by more than 40,000 people every day. The four before the decimal point, a boom in other G-20 countries, means something like intensive care unit in India.

Displeasure with the naturalization law

The sudden downturn has both economic and political facets. In December the Indian parliament passed a new naturalization law, the "Citizenship Amendment Act" (CAA), which heated feelings in parts of society. At first glance, the law looks positive, downright liberal, because it simplifies the naturalization of migrants and refugees from India's neighboring countries Bangladesh, Pakistan and Afghanistan, which number in the millions. The CAA enables all those who came to India before 2015 to become Indian citizens - but only if they are Buddhists, Christians, Hindus, Jains, Sikhs or Parsees. Muslim migrants are denied naturalization.

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In this respect, the CAA is not in line with a leitmotif of the Indian constitution, which strictly separates state and religion and regards all religious communities as equal. It remains to be seen whether the law passed by Prime Minister Narendra Modi and his Interior Minister Amit Shah will stand before the Indian Supreme Court. For many of the approximately 200 million Muslims in India, it is already a slap in the face. There were massive protests in the northeast and in many large cities, in which more than 20 people died. Country and society are in turmoil.

Misery in the banking and telecommunications sector

At the same time, several Indian industries are in crisis mode. The financial sector has been busy working off bad loans for years and gradually wiping them off the balance sheets. This mainly affects state-controlled banks, many of which are also listed, while private financial institutions such as HDFC Bank or Kotak Mahindra Bank have generally operated a much more solid credit policy. As a result, many banks with ailing balance sheet are holding back from granting new loans, which slows down investment and consumption. According to estimates, car sales in India recently fell by 13 percent compared to the previous year - the sharpest decline in this millennium.

The situation is even more dramatic in the telecommunications sector, which is actually a booming industry in the wake of the IT revolution that is also omnipresent in India. Jio was launched in September 2016, a newly founded telecommunications subsidiary of Reliance Industries (RIL), which is now the most valuable stock exchange company in the country. At first, Jio, an offshoot of the corporate empire of multi-billionaire Mukesh Ambani, was ridiculed. Wrongly. Of the telecommunications companies operating at the time - a good dozen of considerable size - only three are left today after a drastic market shake-up. In addition to RIL, these are Vodafone Idea and Bharti Airtel.

Good thing: Data transmission in India is cheaper today than anywhere else. Practically everyone uses a smartphone or cell phone. Less good: Except for RIL, the entire industry is posting losses, mainly as a result of a bitter price war. And that's not all: On October 24, 2019, the Supreme Court issued a ruling that revised the calculation of license fees from companies to the state - retrospectively from 2003 plus interest and penalties and interest on penalties. The claims of the tax authorities on telecommunications companies alone amount to more than 18 billion euros, payable by January 24, 2020.

Vodafone Idea, 45 percent owned by the British Vodafone Group, consequently set a record at the end of the year, namely the largest quarterly loss in Indian economic history with the equivalent of more than six billion euros. Kumar Mangalam Birla, chairman of Vodafone Idea, said at the beginning of December that unless the government intervened quickly, he would close the shop.

Airtel, about 40 percent controlled by Singapore Telecom, was also under the ban of the tax authorities. Reliance Jio, in turn, escaped the judicially ordered financial massacre: too young. It is now conceivable that today's telecom oligopoly will shrink to a duopoly with three large private providers. However, Vodafone Idea has around 370 million customers. If the company were to give up, they would be lost and the government in New Delhi would have two more problems: even more dissatisfied citizens and an additional swath of devastation in the banks' balance sheets. Airtel and Jio, in turn, the survivors, would gain significant market share.

Model company under attack

The situation in aviation is similarly turbulent. Jet Airways, at that time one of the largest providers, had already gone bankrupt in April 2019. The long-established airline Air India could soon follow, which was nationalized by Prime Minister Jawaharlal Nehru in the 1950s and has since been managed without consideration for losses. The Modi government has been trying for a long time to get rid of the highly indebted state company, but under absurd conditions and therefore unsuccessfully so far. Finally, India's largest private company, Tata Sons in Mumbai, is also experiencing chaos. The holding, with total sales of more than 100 billion euros, comprises over 100 subsidiaries, many of which - for example Tata Motors, Tata Steel and Tata Consultancy Services (TCS) - have their own stock exchange listings. With a market capitalization of a good 100 billion euros, TCS is India's second largest stock exchange company. At the moment, however, it is unclear who the legitimate boss of the renowned conglomerate is actually.

Until 2012, Tata Sons was run for more than 20 years by Ratan Tata, a member of the Parsi dynasty of the same name. The successor to the now 82-year-old Tata was named Cyrus Mistry, whose Indian-Irish family has been associated with the Tata group for decades and holds more than 18 percent of shares in Tata Sons. However, Chairman Mistry, now 51, was temporarily relieved of his duties in October 2016 after a falling out with Ratan Tata.

Confusion in the executive suite

On December 18, 2019, a court ruling was issued, according to which Mistry's expulsion was "illegal" and he is in principle still Tata boss, although he does not want to be that and Natarajan Chandrasekaran has long been chairman there - by the way, according to the judges , "illegally". In short: a piquant, multilayered legal situation that will keep India's flagship company busy for months. The Tata group has now called the Supreme Court of India to clear up the mess in the boardroom. Exit open.

All of this is sobering, albeit an intermediate low rather than a fundamental break in India's long-term economic rise. The two leading stock exchanges in Mumbai, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), are relatively unaffected by the turbulence. Its leading indices, BSE Sensex and Nifty, are trading near all-time highs. It helped that the Reserve Bank of India (RBI), India's central bank, cut rates five times in 2019 to get the economy going again.

Investors in Germany cannot invest directly in most Indian listed companies and usually take the detour via index funds (ETFs) or actively managed funds. Some blue chips are traded in Germany as ADR (American Depository Receipt) or GDR (Global Depository Receipt). Among these, companies from the IT sector in particular appear cheap at the moment: Infosys, Wipro and the US company Cognizant, which has 200,000 employees in India. The price of RIL, a buy recommendation from BÖRSE ONLINE since 2014, has more than tripled since then. The Ambani Group - a giant in the oil, gas and chemical business, India's largest retailer and now also the telecommunications market leader - also remains a suitable proxy investment for India's economy as a whole. Long-term oriented investors can use price setbacks to get started.