A solar power plant in Tuticorin, India, on Wednesday, March 20, 2024.
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This report is taken from CNBC’s ‘Inside India’ newsletter this week that brings you insightful and timely news and market commentary on the emerging powerhouse and the big companies behind their meteoric rise. Like what you see? You can subscribe here.
Emerging markets have been on edge for much of this year, as the Federal Reserve has been teasing the possibility of cutting interest rates.
Historically, as US interest rates decline, the dollar’s massive appeal fades in favor of other currencies.
However, any hope of such easing was dashed last week after expectations for the first interest rate cut were pushed back to September, with a good chance of it being pushed back to December.
India Inc may not care this time.
“All this increase in interest rates, in fact, has not affected us at all from a business standpoint,” Sumant Sinha, CEO of ReNew, India’s largest clean energy producer and a Nasdaq-listed company, told CNBC.
Despite the Reserve Bank of India raising interest rates along with its global counterparts, Indian companies continued to grow like never before. For example, ReNew reported positive sales momentum in its most recent full-year results. Remarkably, it also became profitable as a public company for the first time.
ReNew seems to be stretching across the US and Indian markets smartly. The $2.3 billion company operates entirely out of India, yet its largest shareholders are US and Canadian institutions. It is raising debt denominated in US dollars, but is keen to hedge against any decline in the value of the rupee.
Being smart has paid off, and lenders have taken notice. French bank Société Générale recently agreed to lend it up to $1 billion in the current market environment over the next three years. This is in addition to the billions provided by non-banking financial institutions to the company, which currently has the capacity to produce about 10 gigawatts of clean energy.
“Over the last 18 months, we have already refinanced nearly $1 billion of our Eurobonds through the rupee market,” Sinha said. “In fact, we were able to reduce borrowing costs by about 60 basis points by doing some of that.”
She’s not the only one. Across the country, many businesses and industries continue to grow, as if rising interest rates don’t matter and current levels are normal.
In fact, unlike most advanced economies, India’s interest rate regime in 2024 is no different from 2018.
This is in stark contrast to the negative interest rates that the Eurozone has faced, or the challenges that Japan faces to date. During the Covid-19 pandemic, interest rates in India were low at just 4%.
However, the GDP growth of the world’s fifth-largest economy has only accelerated since then. The credit rating agency Fitch raised its forecasts this week, expecting the Indian economy to grow by 7.2% this year.
But what if financial conditions tighten further? Shouldn’t corporate borrowers start defaulting under a higher scenario for a longer period?
“We haven’t seen any episodes of bad loans being formed,” says Rahul Jain, head of India research at Goldman Sachs.
ReNew Energy shares are down 16% this year despite expectations that earnings per share will more than double over the next two years. The stock was sold alongside other stocks in the industry facing unique fundamental issues. Meanwhile, the iShares Global Clean Energy ETF is in the doldrums while the S&P 500 hits new highs.
Therein lies the disconnect between the economy, the stock market and the single stock.
While companies are able to grow and even profit when interest rates are high, their stock prices do not always reflect this.
There may be an argument to be made as to whether Wall Street needs to cut interest rates more than Main Street.
When asked if he was counting down the days until the sale, Sinha said: “Not only am I counting down, but I have been waiting very anxiously for some time now.”
India and the United States pledge to strengthen trade relations. National Security Advisor Jake Sullivan He was in the country this week — the first visit by a high-ranking US official since the election result. After the Modi meeting, the two sides pledged to enhance defense and technology cooperation, among other announcements.
Four important areas that Modi cannot ignore in his growth target. Prime Minister Narendra Modi has an ambitious goal to make India a developed economy by 2047, a century after its independence from Britain. CNBC’s Charmaine Jacob highlights four areas Modi must focus on if he intends to make it a reality.
High contract bond flows. Foreign investors will buy $2 billion worth of Indian government bonds this month – the highest level in a decade – when they will be included in JPMorgan’s widely tracked index. Assets worth more than $200 billion track the benchmark under which the allocation to India will gradually rise to 10% over the next 10 months.
India records the “longest” heat wave. Delhi is facing a severe water crisis as the temperature in some parts of India’s second most populous city has risen to more than 45 degrees Celsius (113 degrees Fahrenheit). CNBC has compiled images from across the country as the dry spell is expected to continue over the next four to five days.
Indian stocks are making slow progress, but are holding on to their year-to-date gains since the general election results were revealed. The Nifty 50 index is headed for a 0.4% gain this week. The index rose 8.45% this year.
The yield on India’s benchmark 10-year government bond remained relatively weak, with the yield falling below 7% and closing at record lows.
Private investment will pick up when consumer growth kicks in over the next six months, Ramdeo Agrawal, chairman of one of India’s largest stock brokerages and asset management firms, Motilal Oswal Financial Services, said on CNBC this week. The benefits of higher capital spending, which does not depend on government spending, are expected to appear during the next two years.
Meanwhile, Rahul Jain, head of India research at Goldman Sachs, told CNBC’s Tanveer Gill that the “goldilocks” period is over for Indian banks as they are under pressure. Shares of lenders such as HDFC have underperformed the broader market this year as investors focus on credit losses on their balance sheets. Despite the caution, Goldman’s Jain favors private Indian banks over state-owned banks.
India will play against Bangladesh this weekend in the T20 Cricket World Cup. India will also face Australia on Monday.
Non-bank lender Akme Fintrade India and engineering firm DEE Development Engineers will make their stock market debut on Wednesday.