GDP numbers augur well: Financial Express 31st May 2025

 The National Statistics Office’s (NSO) estimates on GDP for FY25, at 6.5%, are the same as the second advance estimates and hence does credit to its forecasting skills. Thus, there are no surprises for the market, and it will be business as usual. The NSO’s accuracy in forecasts need to be commended given that the exercise is quite mammoth due to the considerably large unorganised sector in the economy.

The internals for the year as well as the fourth quarter are quite impressive, especially as the last quarter has posited growth of 7.4%. All through the year, various high-frequency indicators such as goods and services tax collections, e-way bill issuances, purchasing managers’ index, and export of services have been sending very positive signals. The high base effect of 9.2% growth in FY24 was supposed to bring down the rate, so 6.5% is an impressive number.

Agriculture has been the big winner with growth of 4.6%, which suggests a good monsoon resulting in a stable kharif crop followed by a similar rabi crop can keep the rural economy ticking. In fact, this is a necessary condition for attaining sustainable growth over a longer period. As the monsoon forecast for FY26 is positive, indications are that rural consumption should continue to tick this year. This would be the supply side of the sector, and given the increase in minimum support price across the board for the kharif season — it will probably be replicated for rabi crops — higher output should result in higher income for farmers.

Manufacturing, however, has been the only segment that has registered relatively much lower growth than the previous year. Growth at 4.5% comes over 12.3%, so there is a big base effect. But it is also known that corporate profits have been under pressure this year due to demand-side factors. In fact, the manufacturing story is quite skewed with infra-oriented industries like steel, cement, engineering, and energy faring well while consumer-oriented ones delivered a mixed performance. High inflation has been the main factor militating against demand. With households spending more on food items, there is less money left for discretionary spending. Thus, the fast-moving consumer goods sector has been particularly affected. This will need monitoring in FY26. Revival of consumption is expected with the government’s fiscal incentives on the tax front.

Related to the slower growth in manufacturing is the slight decline in the gross fixed capital formation rate at current prices from 30.4% to 29.9%. Here too, investments made by companies have been rather narrow-based with industries like power, steel, and cement showing an increase in the face of good demand. Thus, both manufacturing growth and capital formation will be inexorably linked in FY26.

The construction sector has been one of the drivers of growth — it reflects both the contribution of housing as well as the government push on capex. The housing sector has gone through difficult times with interest rates being high over the last two years. There was an uptick in premium houses while the middle class stayed away. Government spending on roads, bridges, and irrigation works has been the major drivers of construction, which has kept growth ticking. Given the spare capacity, there is immense potential to expand construction in India. This trend may be expected to prevail in FY26.

The services sector has registered growth of 7.2% against 9% last year. The trade, transport, hotels, and communication segment has grown by 6.1%, which does not adequately capture the high level of spending by people on “services experience”. There has been a spike in spending on travel tourism and experiences, which should have resulted in higher growth in the segment. Financial services and real estate also registered lower growth of 7.2% on a high 10.3%, mainly due to the slow growth in deposits and credit in FY25. The movement of savings to the capital markets did come in the way of deposit growth. Public administration and other services maintained 8.9% growth with both the Centre and states meeting revenue budgets.

The fact that the Indian economy clocked growth of 6.5% over 9.2% (FY24) reflects a rather strong foundation. This would provide sufficient buffers to counter the global uncertainty building up periodically. Being a largely domestic-oriented economy, maintaining growth in the region of 6.5% would not be a problem. The challenge would be to move to the 7%-plus territory.

For that to happen, the demand side must be worked out. So far, the focus has been on the supply side, where the Reserve Bank of India has been lowering rates to push up investment. But investment is a result of higher capacity utilisation rates that can be achieved only when consumption increases and companies need to infuse fresh capital. This process normally takes at least one or two years. It can be hoped that FY26 will provide this initial push to consumption.

The heartening fact is that official data hints at the creation of more jobs. But they need to be in high-value production and services where income is typically higher. Right now, the jobs are concentrated in construction, logistics, retail, etc. which do not provide the wherewithal for high discretionary consumption. As the economy keeps growing, this matrix will change. It can be hoped that overall growth will be more broad-based with the manufacturing sector providing a major push.

Swipe right for shaadi business: Economic Times 31st May 2025

 

RBI POlicy review: whay this time it is different: Mint 27th June 2025

 https://www.pressreader.com/india/mint-delhi/20250527/282192246909890

Conjecturing Stock Market Movements In FY26: Free Press Journal: Saturday the 24th of May 2025

 

Interestingly, if the week-ending data is examined for the year, it peaked at 85,571 for the week ending September 27, 2024. The low was 72,644 on May 10, 2024. The variation has been around 13,000 points.

If Sensex data is looked at on a weekly basis, it ended on March 29, 2024, at 73,651. One year later, on March 28, 2025, it was at 77,415. The increase was just 5.1%. Interestingly, if the week-ending data is examined for the year, it peaked at 85,571 for the week ending September 27, 2024. The low was 72,644 on May 10, 2024. The variation has been around 13,000 points.

For the 52-week period, the Sensex was less than 75,000 for 11 weeks. For 25 weeks, it was between 75,000 and 80,000 and above 80,000 for 16 weeks. Therefore, on the whole, the performance was more than satisfactory. From mid-July to mid-October, the index was above 80,000, giving a sense of stability. In a way, it can be said that the level of 70,000 has been maintained irrespective of the economic conditions.

In the present financial year, for the 7 weeks ending May 16, 2025, it was less than 76,000 for 2 weeks when the tariff regime of the US was announced. On May 16, it was 82,330. The two random shocks, the terrorist attack in Kashmir and the time India retaliated, were when the index went to less than 80,000. Otherwise, it has been business as usual for the markets and investors.

The significance of all these numbers is that, for the entire year, the stock index has been range-bound.

 

The year was quite tumultuous for the economy as such. First, growth was lower at possibly 6.5% against 9.2% last year. Second, corporate profitability was low over all 4 quarters, with the top-line and bottom-line growth being in single digits. This is one factor which has also affected the GDP growth, as value added reckoned in calculating the GDP is based on corporate profitability. In fact, the IPO market was less ebullient this year relative to FY24.

Third, investment levels remained just about stable, as private sector investment was narrowly focused. The infra-based companies were investing, while the consumer goods segment was rather dormant, as they had excess capacity. Fourth, there was some pushback for government capex due to the elections, and while there was some hurry shown towards the end of the year, there was a shortfall in spending. Fifth, the emergence of Donald Trump as President was significant, as he has been unequivocal in his articulation on the tariff issues. This has rattled stock markets all over, even though the deferrals have been given a big thumbs up subsequently. Sixth, consequently, the FPIs have been whimsical all through the year, with the final net inflow being very insignificant. The prospect of Making America Great Again meant that there would be more investment opportunities in the US, which caused investments to turn away from emerging markets, in particular as they have been targeted more than the developed ones.

There has been, however, a major push from the retail end through the mutual funds route. FY24 was a year when the market delivered very good returns of 25%. This was a precursor to the retail frenzy in the market, where there was a lot of enthusiasm shown in the equity and F&O segments to the extent that the SEBI had to launch a campaign to dissuade the less financially literate investors from staying away from the latter. This was the time when mutual funds picked up and were seen in terms of incremental assets under management, increasing by around Rs 13 lakh crore. This was the phase when bank deposits did not quite yield high returns, which tended to get capped at around 8-8.5% for specific tenures for certain time periods. This provided support to the stock market even while FPIs were quite idiosyncratic.

Against this background, there is reason to be quite satisfied with the stock market performance, as quite clearly, the investor view is forward-looking. The resilience shown by the economy has given confidence that it will remain steadfast this year too, though it may not yet accelerate. More importantly, there are expectations that consumption and investment should improve, which, in turn, will help corporates to do better. The government has given a push to consumption with tax concessions, which, along with lower inflation during the year, should spur consumption, especially in urban areas. The middle class has gotten this benefit, something which was absent in the past.

Further, a good monsoon, which has been predicted for the year, will mean that agricultural harvests should hold up and provide the push to rural incomes and, hence, demand. This has been supplemented by the RBI, indicating more rate cuts after already lowering the repo rate by 50 bps. Housing, in particular, should tick at the consumer end.

Therefore, optimism in the corporate sector is quite profound, which has kept the momentum up. In fact, the fact that India is a domestic-orientated economy means that the impact of higher tariffs by the US, which can lead to a slowdown in exports, may expect the GDP growth only marginally. Further, there are indications that there would be a constructive dialogue between the ministry and the US on the issue of tariffs, which will be a positive for Indian companies that are dealing with exports. The tariff structure announced in April would be implemented in July, and there are indications that several countries are negotiating the same with the US.

Also, with the RBI cutting interest rates, from the point of view of savings, there would be a tendency for the market to once again be more attractive, leading to increased activity. This can be a challenge for banks to garner deposits, as the retail segment continues to put money in the stock market, either directly or through the mutual funds route.

Hence, the overall picture for the markets looks positive. While it will be premature to put a number to the Sensex for, say, December, based on past trends, there will be a range-bound movement which can be in the region of 78,000 to 85,000, with a possible upward movement if corporate performance turns around more decisively. Investors at the retail end need to follow an approach of patience and perseverance, as short-term returns may still be lower than those procured on fixed-income assets. It probably has to be a medium-term stance that has to be taken, as there would be gyrations during the course of the year depending on the economic developments.

Complexities in rating states' debt: Business Line 23rd May 2025

 

The status quo of US ratings: Financial Express: 22nd May 2025

 The lowering of rating of the US by Moody’s has passed off as a non-event. S&P and Fitch had done the same quite a while back. S&P did so in 2011, post-Lehman crisis, and Fitch followed a little over a decade later in 2023. The state of the economy is well-known. The US has a fiscal deficit ratio of 7.6% and evidently spends more than it earns. The debt-to-GDP ratio is 124%, one of the highest in the world. The current account deficit was at 3.9% as of December. All these indicators should have raised a red flag from the point of view of credit rating companies. But this is taken to be a normal given that it is the US. Therefore, downgrading a notch does not really mean much.

The present downgrade has been driven a lot by what the new regime could end up doing. Higher tariffs will necessarily increase inflation which in turn will put pressure on the Fed on rates, which can lead to a slowdown in economic growth. Some also say that the phenomenon of stagflation cannot be ruled out where inflation remains high and GDP growth slows down, if not turn negative.

How then does the US manage this situation with ease? The answer is that for all practical purposes the dollar is the anchor or reserve currency in the world. Dollars are used primarily for all global transactions. The euro, pound, yen, and Swiss franc follow but the dollar is supreme. If that is the case with transactions, there is dependence on the US for the supply of dollars. Only when the US runs high deficit will there be more treasuries that are issued, which central banks all over the world can invest in. Otherwise, this investment option will get diluted.

There was a brief period following the Ukraine war when Russia’s dollar assets were frozen and the nation was pushed out of the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system of payments. This was when there was a cry for de-dollarisation. While there has been talk, central banks or nations have made no significant move as such when it comes to dealing with forex assets. The dollar is still strong and used for trade settlements, while central banks have not really changed their composition of assets. Some central banks have opted for gold, but given the physical supply constraints such a move has limitations.

In this context it would be interesting to see the credit default swap (CDS) rates on sovereign bonds to gauge the market flavour. These are notional rates provided by worldgovernmentbonds.com. The CDS is, in a way, the insurance cost that has to be paid against any default on the bond. For AAA rated countries like Switzerland, Sweden, and Finland, the five-year CDS was in the region of 8-13 basis points (bps). In case of AA rated countries, it would be around 20 bps which will be 30 bps for A rated sovereigns. For the US it is in the region of 45-50 bps with AA+ rating. It is higher than that of other similarly rated sovereigns because of the recent developments in economic policies.

Therefore, two points emerge. The first is that this will not really have a bearing on how countries look at the dollar which is still the most preferred asset. In fact, the US President had warned countries which move away from the dollar for settlement of payments that higher tariffs could be imposed on them. The second is that while a downgrade is normally associated with a reputation risk, in case of the US it would not really make a difference. This is because two other agencies had done so earlier, which did not quite move the needle. In fact, American companies have not quite had any issue in raising funds in overseas markets due to the sovereign rating being less than AAA.

A broader issue is the methodology used by rating agencies. There seems to be a stickiness in assigning ratings at both the upper and lower scales. India, for example, would definitely be in the A+ category given a spectacular economic record. Consistently labelled as the fastest-growing economy even during global economic turbulence, there has been a strong regulatory framework on both the fiscal and monetary sides. While consistently recording low current account deficits and attracting high foreign direct investment inflows, the rupee has also been one of the best-performing currencies in the last three years. There has also been a strong improvement in job creation as well as removing people from poverty, a significant achievement over the years.

Besides, government debt is in rupees and the fiscal deficit has been following a glide path downwards. In fact, three global bond indices have included/will be including Indian securities in their basket. This is a strong vindication of the quality of government debt. Under these conditions, there would be a strong case for a rating upgrade. Looking at the implied CDS rates for India, it is 85 bps for a BBB (minus) rating. China with A+ has a CDS of 54 bps while Israel with A rating has a CDS of 100 bps (which can be due to the ongoing war).

There is definitely a need for the credit rating agencies to revisit their approach to sovereign ratings and align them with the changing economic developments to be more realistic. While the argument of anchor currency is pertinent, there must be limits. In fact, if this strong assumption is relaxed, there can be more discipline brought in terms of US policies on budget and the way in which it maintains relations with the rest of the world. Moreover, growth — where India has done very well — is a strong argument to consider when it comes to sovereign rating. Developed countries which fall below the average mark for successive years need to be reexamined. Moreover, the view of the market which is represented by investors cannot be ignored as this entity has skin in the game and is putting money on the table and investing in the emerging markets.

INdia's transmission of repo rate changes has improved over time: Mint 12th May 2025

 https://www.livemint.com/opinion/online-views/rbi-repo-rate-monetary-policy-interest-rate-eblr-mclr-deposit-rates-lending-rates-inflation-forecast-gdp-growth-malhotra-11746711950750.html

The Business Of Coaching Classes Is Big And Lucrative: Free Press Journal 10th May 2025

 

The Business Of Coaching Classes Is Big And Lucrative

Interestingly, as is normally the case, several coaching classes for the civil services have showcased their contribution to the success of candidates by advertising on the front pages of various newspapers.

The news of the topper of civil services making it in the fifth attempt is more than commendable, as it shows the dedication of the person as well as his unrelenting perseverance. This will be a role model for several aspirants who want to make it to this most prestigious service or even a management, engineering or medical course. In fact, even the perseverance shown when pursuing the CA certification is analogous to this effort. Interestingly, as is normally the case, several coaching classes for the civil services have showcased their contribution to the success of candidates by advertising on the front pages of various newspapers.

A broader issue which is raised is that given the limited seats that are available for the courses or positions in the civil services, the number of years spent preparing for the same is very high. For example, almost 13 lakh candidates take the civil services preliminary examinations, with around 15,000 making it to the main examination. Further, a little less than 3000 are called for interviews for around 900-1000 positions.

These numbers will keep rising as a fresh set of eligible candidates join the fray and a large part of the set of candidates who have not been able to qualify take it again. The system allows them to do so 5 times with an age limit. Normally these candidates tend to work exclusively on preparing for the exams and rarely would be working elsewhere. While this may not be the case with other public examinations, the civil services endeavour is one which requires complete dedication and is hence not generally done on the side with a regular job.

There are around 3 lakh candidates who take the management examinations, which include CAT, NMAT, XAT, CMAT, etc. These could be working professionals or students of regular courses. There are 15 lakh candidates who take the JEE engineering exams, while another 15 lakh try for the NEET medical examination. Therefore, there is a large youth population constantly studying to improve its career choices in life. In these examinations, there are no restrictions on the number of times that a person can take the exam. Further, there is no upper age restriction, which means that until fatigue sets in, one can keep trying to pass them.

The biggest beneficiary of this system has been the myriad tutorial classes that have been established to coach students for these examinations. It has become an industry today with rather weak regulation. With the concept of online coaching classes catching on, the potential candidates have options, especially when it comes to time and location. In fact, the concept of housewives providing tuition to children for certain subjects in school has ballooned into a large industry but remains largely informal still.

The web sites of coaching classes for the civil services examinations reveal that the fees could range from Rs 1 to 3 lakhs for foundation courses, which can rise by another 25-50% when specific subjects are also opted for. This would start from the preliminary examinations and extend to the main examination. Some of the institutes also provide training for the interviews, which may not be very popular but are still opted for by some individuals who would not like to leave any stone unturned.

In the case of management examinations, the fees could vary between Rs 20,000 and Rs 1 lakh, depending on the module that is chosen. There are classroom sessions which are for a limited period of time. There are online classes besides correspondence courses with some in-person classes. There are interactive videos as well as exam sessions that could also be taken, which can cost between Rs 5000-20,000. Often the faculty are individuals who have passed the exam and take on the role of guides. Or, they could be permanent faculty who have vast experience in training students, who probably never made it to the corporate world or bureaucracy.

Engineering courses can have fees ranging from Rs 1-3 lakhs, depending on the stage when one starts the coaching, as this is often done once a student completes the 10th standard examination. The NEET exam coaching can start from Rs 5000 and go up to Rs 2 lakhs, again depending on the mode adopted and intensity of the classes.

Hence, the biggest beneficiary in this rat race, which has evolved over the years for getting into a professional course or the prestigious civil services, has been the coaching industry. Given that candidates who do not succeed in the first attempt may go through with the classes the second time before looking at other options, the flow of students is immense. The size of the coaching industry in India has been placed at around Rs 60,000 crore, which can double in 5 years’ time as more youth enter this stream.

The two demographic challenges that come up are the following: Given that a student who opts for any of these lines of careers spends multiple years in preparation, there is a loss of productive work life from the point of view of the nation. This holds more so as the potential candidates are otherwise well qualified to appear for these exams and are not a part of unskilled youth. This leads to a debate on whether there should be a restriction on how many times a person can take an examination. Probably for the professional course, one could be studying or working while taking multiple attempts, which may not, however, be a productive one. But for those who take the civil services, the trend has been to study full-time for the examination, which has an opportunity cost for the country, given that all those who take these exams would be better qualified in terms of performance at the college level.

The second issue is that with an explosion in the young population, there need to be more opportunities for them. There can be a case of the government increasing the size of the civil service, given the high level of premium attached to serving the nation. The government has already done a lot in terms of increasing the number of IITs and AIIMS in the country, which allows for more students to progress in their education.

As the population increases and the demographic pattern favours the youth, there will be progressively more competition for the limited vacancies in different fields. This is what will keep the tutorial or coaching business ticking for sure.

Reconciling PMI with manufacturing growth: May 8th 2025 Business Line

 

It all shouldn’t be in the family: How ‘dhanda’ needs more than just bloodlines: Book Review in Financial Express 4th May 2025

 

Explore “Family and Dhanda” by Srinath Sridharan, a guide on succession planning for family-owned businesses. Learn why professional leadership, adaptability, and effective governance are crucial for sustaining legacy, avoiding conflicts, and ensuring long-term success in India’s dynamic business landscape.

Few would be aware that family-owned businesses (FOBs) contribute to 75% of India’s GDP and can be seen across a  spectrum of enterprises ranging from large conglomerates to MSMEs. An interesting observation made in Srinath Sridharan’s book Family and Dhanda is that only 10% of the FOBs survive the third generation. The main issue is succession planning.

There have been several cases of strong disputes between family members leading to business groups being dismantled. Moreover, often not all successive generations have the ability to continue to grow their enterprise. The author points out that there would always be issues like family politics and sibling biases that creep in. Further the level of competence varies across generations and ideology often is a barrier. Interestingly, he also points to the role of spiritual gurus who tend to get associated with the family and provide strong advice on this issue. This book is quite revealing as he takes us through various facets of the planning process with some anonymous examples being thrown in.

The author points out that problems in FOBs came to the fore especially after the reforms in 1991. This was a turning point because markets opened up and one had to fight to survive and succeed. It was not a case of saying “we can produce what we want and the consumer will accept it”. The choices had increased and there was ever increasing demand for new products. What was required was adaptability where one had to accept change and look to see where opportunities lay. This became difficult when such enterprises were run by people with fixed mindsets. It was only businesses that aligned with change that did well. A major lesson also learnt was that there was need to have professionals run the businesses. Those who had professional qualifications and experience had the right tools to run business in this new environment. This is a problem with several businesses where the CEOs tend to be family members across generations. Hence this was a wake-up call for all businesses.

Sridharan literally goes through the A to Z of succession planning with each letter in the English alphabet connoting a trait that is required. These could start from ‘Aspirations’ varying across generation members of a family or preserving the ‘Brand’ of the family (which is very important even today as several customers trust the brand) to qualities like ‘Desire’ and ‘Competencies’. Other aspects of succession planning touched upon are ‘Values’, ‘Unity’, ‘Transparency’, ‘Quality of life’, etc.

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Of special mention can be the ‘Leadership development’ aspect because this is something that cannot come from within but has to be learnt either by experience or classroom sessions. He does point out to essential qualities required here, like having a strategic vision, financial acumen, communications skills, ethical decision taking, etc. A system where the owner projects they know everything is not something that works today.

This is a book that should be read carefully by all family business people. In fact, the author also provides the A to Z of skills sets that are needed to run a business. Here he touches upon factors like emotional intelligence, financial literacy, humility, innovation and so on. More importantly, he stresses on the global mindset that is progressively becoming  important today with the spread of globalisation and integration of countries, due to which the symbiotic relationship between companies and the world cannot be separated.

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Sridharan also has a section that looks at the ‘rough edges’ which come up when managing such enterprises and need to be ironed out. One area that comes up repeatedly is the need for professionalism and the need to move away from the practice of ‘jugaad’. As most companies tend to get listed and are answerable to shareholders, who would be outside the family too, creating ambiguity and uncertainty is just not acceptable.

Another factor that he talks about is when the progeny are not ambitious; as there is no reason to believe that a successful businessperson’s children are equally competent to take on the job. If the reader looks at the history of some of the major family businesses, names pop up immediately about many misfits. The same is true of when the author talks of ‘spoilt brats’, where the examples are numerous.

These two aspects of ‘avoiding jugaad’ and ‘misfit children’ become important not only from the point of view of success of enterprises, but also come in the way of corporate governance. Here, too, when one looks back at contemporary family business history, several examples come to the mind. The reputation of brands is hit and this can also get exacerbated in the form of legal issues where family members are fighting one another.

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When a family business is a well known successful brand, expectations of all the stakeholders remain high even when the baton is passed on. If the same standards are not maintained, it reflects on the sustainability of the business.

This book is extremely interesting as it also delves into areas such as disputes within the families, as well as out-of-wedlock children and their role in succession planning. He also goes further into issues of failed marriages between business families where a social issue can have a sharp effect on business prospects.

Therefore, he suggests that families need to do the balancing act when planning succession keeping in mind all these factors. This may not always be easy, especially when one of the children has to be given the most important post. For this, the parent needs to fall back on advisers for unbiased guidance, as the preservation of the legacy is contingent on the best person being chosen.

But more important, the parent needs to step down at some time. Often, the person is not willing to loosen grip on the reins until there is a health challenge. Or even so, by taking a non-executive role, such a parent would still call the shots. This really could be the biggest challenge.

This book is surely one of its kind and something that every business family can identify with. It could have been embellished with some names when giving examples on both the good and not-so-good sides. Evidently the author has steered clear of any controversy here.

Madan Sabnavis is chief economist, Bank of Baroda.

Family and Dhanda: A to Z of Succession Planning for Founders and Successors

Srinath Sridharan

Rupa Publications

Pp 352, Rs 695