Category: Macro Posts

Alex writes…..In the UK, relaxation of rules around banking licensing has seen a flurry of challenger banks spring up, mostly targeting retail banking. These ‘neobanks’ are mostly app-only banks–branchless, digital propositions that offer banking services at far lower costs than your typical bank. Many boast slick apps, allow freezing and unfreezing of cards at the touch of a button and can analyze customer spending in real-time and send budgeting nudges.
The banks are run solely through a smartphone or tablet with no physical branches. Partner firms plug into the apps thus creating a marketplace of services that range from investments and loans to energy and insurance.
And they are thriving, too. Founded five years ago, Britain’s Revolut has amassed nearly two million customers and was recently valued at $1.7 billion during its third round of funding thus making it the first ever digital-only bank to attain unicorn status. That’s nearly half as many accounts as those held by the country’s much bigger TSB Bank Plc.It is also the only British digital bank to operate across Europe so far. Strong growth in countries like France, Germany and Switzerland and the Nordic region helped drive its user base up by 50 percent in the last two months. Expansion plans are also underway in India, Brazil, South Africa and the UAE.

Fintechs tend to thrive in regions with large unbanked populations such as China. For instance in China, Alipay, mobile banking services provider and subsidiary of Alibaba’s Ant Financial, has grown so big that last year it handled more than $8 trillion in transactions–more than MasterCard’s and twice Germany’s GDP. PayTM from India which has just received funding from Warren Buffett is not only disrupting the payment business but getting into direct selling of mutual fund business . The app might also become a major player in the lucrative money market fund (MMF) business like Alipay which  commands a bigger share than the country’s leading banks.

Most banks still have high cost structure related to employees and branches inspite of adopting technology.

I think this displacement will accelerate and the day is not far when we will call our banks,

New Technology companies

 

https://safehaven.com/tech/tech-news/The-Disruption-Of-The-Banking-Sector-Has-Already-Begun.html

https://economictimes.indiatimes.com/markets/stocks/news/what-i-read-this-week-what-is-economic-confidence-model-and-what-does-it-signify/articleshow/65459059.cms

Capital flows determine the Investment Theme and that translate into Investment clock

Markets are still in bottom right quadrant and will be slowly transitioning to bottom left quadrant.

 

Some observations

1. What comes as a pleasant surprise is the continued strings of  green whether currency in circulation,Credit growth,CP issuances, PMI index or even Capital good import.Call me a skeptic, but I am still not sure whether broad economic recovery is underway or simply inventory buildup as a marging of safety,incase there is an escalation in trade war.

2. The food inflation continues to put downward pressure on overall inflation but core inflation continues to be stubborn
3. Monetary policy going forward will give more consideration to financial stability than just inflation numbers.

Teresa at Nirmal Bang securities comments on Monetary Policy Committee “The minutes of the recent RBI policy suggest that the rate hike was implemented on the back of the hardening of core inflation, elevated crude oil prices,. hardening of inflation expectations, higher than normal increase in minimum support prices or MSP for kharif crops and factoring in the possibility of fiscal slippage. It was also supported by sustained domestic recovery despite considerable uncertainty on the global growth outlook. The consecutive rate hikes were intended to be both
pre-emptive and front loaded , and as described by Chetan Ghate akin to an ‘insurance policy’. There was also widespread acknowledgment that the actual impact of the MSP increase will depend on the implementation process, and hence difficult to estimate ex-ante. Nevertheless, none of the members seemed to suggest the possibility for further rate hikes in the immediate future. In fact, Dr. Michael Patra, noted the possibility of inflation softening in Q2FY19 before picking up again in the third quarter and fourth quarter. He also expected the softer prints in
Q2FY19 to lull inflation expectations. His preference was to reinforce the policy action that commenced in June with another policy rate increase and to allow the accumulated policy impulse to work its way through the economy, while maintaining a vigil on inflation. Dr. Acharya also echoed a similar sentiment by suggesting that transmission will occur with a lag. Consequently, we expect the RBI to keep key policy rates on hold at the next couple of meetings. With inflation likely to hit 5% again by the end of FY19 or Q1FY20, we expect one more rate hike probably in
early FY20”.

My view: Rupee volatility will decide the extent of rate hike. Fundamentally what Teresa has written makes sense but at the time when capital flows are not favoring Emerging Markets, India needs to raise rates more than warranted just to make local assets more attractive and stabilize currency. That also means , growth will most certainly be sacrificed to maintain the financial stability.

A senior finance ministry official said India would not be concerned if the rupee fell to 80 against the dollar after hitting an all-time low of 70.1 on Tuesday, as long as other currencies also depreciated. This would appear to be the sanctioning of a further 15% fall. The currency has fallen 8% this year, pushing up the prices of imports. Subhash Chandra Garg, economic affairs secretary at the finance ministry, said that the Reserve Bank of India had already spent about USD23bn defending the currency, and that further intervention may not help as the fall was due to external factors.

 

The problem of currency depreciation is magnified by a sticky and rising core inflation prompting Goldman Sachs to highlight the challenges faced by RBI.

Compunding the issue is India’s trade deficit which hit a multi-year high as imports rise and exports stagnate.

So inspite of all the above mentioned issues of Rising inflation and trade deficit the question is why is Indian market resilient unlike last time in FEB/MAR when admitedly our macros have worsen?
The Emerging Market sell off seen till now is actually contained among few economies and the correlation among EM markets is actually down. That roughly means the selling this time is not from ETF but by active managers who are selling based on fundamentals.

Will this selloff spread to other markets is a million dollar question. I believe it will spread to other EM including India  simply to cover losses of other markets and reducing the risk thereby pressurising the Indian Currency.RBI then ,will be left with no choice but to raise the rates more than required which in turn will a negative impact on both Household consumption and domestic growth .

1.India’s list of millionaires has more than doubled in the last 10 years. But there’s still no stopping Indians.
The country will have 950,000 millionaires by 2027, up almost 190% from 330,000 last year, a recent report by Johannesburg-based market research group New World Wealth predicts.There are lot of business which get excited at size of our population but in reality these millionaires are the only ones with big bucks to spend and Invest

2.Populists and authoritarians now oversee the biggest chunk of G20. President Donald Trump in the US is one prominent example.Italy is another. What does the populist drive mean for the global economy? India is no doubt an established democracy but spilling towards populist

3.No Not again…. but this time some historical perspective of what happens in a crisis.