Arvind's Newsletter

1.Telcos return to profitability

After years of investments, Airtel and Jio are staring money in the face. Both telecom firms are likely to post higher free cash flows and record returns on capital employed this financial year. 

Airtel’s ROCE may surge to 10-19% over the next three years while Jio’s may double to 11-12%. Distant third Vi is still waiting for its fundraise to come through. 

Telcos spent the last decade buying spectrum, setting up towers, and rolling out first 4G, and now 5G at supremely low prices. Now Airtel and Jio don’t need to make costly investments; a planned 5G spectrum auction has been postponed a second time already. 

2.Air India aims to double transit international traffic in 5-10 years.

"Currently, the share of international passengers transiting via India on Air India flights has grown to an average of around 4% of our total international passenger traffic from nearly 0.5% earlier. We expect this to grow even further to nearly 10% over a period of 5-10 years the AI executive said, while speaking on the sidelines of the CAPA India Aviation Summit. This part of its strategy to make three major Indian airports — Delhi, Mumbai, and Bengaluru — as key transit hubs."

Air India (AI)'s rise could be at the expense of three "super-connector" hubs — Doha in Qatar, and Dubai and Abu Dhabi in the UAE — as the Indian passenger would any day prefer direct flights of their national airline that is providing excellent on-time service, Arved von zur Muehlen, Chief Commercial Officer of Saudia airline, said on Thursday.

A significant portion — over 70 per cent — of passengers flying on Emirates, Etihad and Qatar Airways flights connected to India utilized the airlines' hubs in Dubai, Abu Dhabi and Doha as transit points for travel between India and third countries in February this year, according to aviation analytics firm Cirium's data reviewed by Business Standard.

3.Bajaj Housing Finance board approves IPO plan to raise ₹4,000 crore via fresh issue plus OFS component

The public issue would include a sale of shares by existing shareholders, said the Bajaj Finance subsidiary in a statement today. The IPO would be subject to market conditions, approvals and regulatory clearances, said the unit of the non-banking finance company (NBFC).

4.Nvidia overtakes Apple as its market capitalisation surpasses $3tn

The US chip designer’s shares rose about 5 per cent to push its market capitalisation ahead of Apple for the first time — ending the day at $3.01tn, according to Bloomberg data, marginally ahead of Apple’s $3tn. The iPhone maker lost its spot as the most valuable listed company to Microsoft this year.

5.Gazprom badly hurt by Ukraine war, says company-commissioned report reports the Financial Times

Gazprom is unlikely to recover gas sales lost as a result of Vladimir Putin’s full-scale invasion of Ukraine for at least a decade, according to a report commissioned for the Russian energy group’s leaders.

The company’s exports to Europe will average 50bn-75bn cubic metres a year by 2035, barely a third of prewar levels, the research predicted. Although Gazprom is hoping that a new pipeline to China can help make up for lost European export volumes, its capacity will only be 50 bcm a year and prices in the Asian nation are much lower than in Europe, the report said, while a deal over its construction has yet to be reached.

“The main consequences of sanctions for Gazprom and the energy industry are the contraction of export volumes, which will be restored to their 2020 level no earlier than in 2035,” the document’s authors wrote.

The 151-page report, commissioned by company management and written late last year, is among the most candid acknowledgments yet of how western sanctions imposed in response to Russia’s war have damaged Gazprom and the wider Russian energy sector. 

“It’s very grim,” said Elina Ribakova, a non-resident senior fellow at the Washington-based Peterson Institute for International Economics, after reading the research. “Gazprom is at a dead end, and they’re very much aware of it.”

6.How AI is changing weather forecasts

Artificial intelligence has sent shockwaves through the field of meteorology in the last 18 months by making huge progress in predicting the weather.

Traditional weather forecasting simulates atmospheric physics and requires enormous computing power. But since 2022 meteorologists have stepped up the use of deep-learning techniques that do not explicitly model the atmosphere, and instead use existing data to predict weather changes much like ChatGPT predicts the next word in a sentence.

These AI systems were expected to reduce computing demand — they can run on an ordinary desktop — but, Ars Technica reported, to meteorologists’ surprise, some are now “performing better than traditional physics-based model” in predicting the weather.

7.Western media which had predicted the end of Indian democracy have been pleasantly surprised. A triumph for Indian democracy opines The Economist in its leader this week.

The world’s biggest electorate has just shown how democracy can rebuke out-of-touch political elites, limit the concentration of power and change a country’s destiny. After a decade in charge, Narendra Modi was forecast to win a landslide victory in this year’s election; yet on June 4th it became clear that his party had lost its parliamentary majority, forcing him to rule through a coalition. The result partially derails the Modi project to renew India. It will also make politics messier, which has spooked financial markets. And yet it promises to change India for the better. This outcome lowers the risk of the country sliding towards autocracy, buttresses it as a pillar of democracy and, if Mr Modi is willing to adapt, opens a new path to reforms that can sustain its rapid development.

The drama unfolding amid a scorching heatwave begins with the election results. Mr Modi’s Bharatiya Janata Party (BJP) aimed to take up to 370 seats in the 543-member lower house, an even bigger majority than in 2014 or 2019. Instead it won just 240. It lost seats to regional parties in its heartlands in Uttar Pradesh and beyond, reflecting a revival of caste-based politics and, it seems, worries about a lack of jobs. Whereas his coalition partners were previously optional extras, he will now rely on them to stay in power. Their loyalty is not guaranteed.

This is not just an electoral upset, but a repudiation of Mr Modi’s doctrine of how to wield power in India. As in the Economist’s new podcast “The Modi Raj” explains, he is a remarkable man, born in poverty, schooled in Hindu-first ideology and consumed by the conviction that he was destined to restore India’s greatness. For Mr Modi, India has been kept down by centuries of rule under Islamic dynasties and British imperialists, followed after independence by socialism and the chaos inherent in diversity and federalism.

For over a decade Mr Modi’s answer has been to concentrate power. That meant winning elections decisively on a platform that emphasises his own brand, Hindu chauvinism and an aspirational message of rising prosperity. In office, his method has been to use executive might to ram through policies that boost growth and reinforce the BJP’s grip on power.

Mr Modi has changed India for good and ill. Fast growth promises to make its economy the world’s third-largest by 2027. India has better infrastructure, a new digital welfare system for the poor and growing geopolitical clout. However, good jobs are too scarce, Muslims suffer discrimination and, under a sinister illiberalism, the bjp has captured institutions and persecuted the media and opposition.

This year’s election was supposed to mark the next phase of the Modi Raj. With an even larger majority and a new presence in the richer south of the country, the bjp aspired to unitary authority across India at the central and state level. That might have made big-bang reforms easier in, say, agriculture. But such power also raised the threat of autocracy. Many in the BJP hoped to forge a single national identity, based on Hinduism and the Hindi language, and to change India’s liberal constitution, which they view as an effete Western construct.

Mr Modi would have reigned supreme. Yet every Raj comes to an end. If, as expected, the bjp and its allies form the next government, Mr Modi will have to chair a cabinet that contains other parties and which faces parliamentary scrutiny. That will come as a shock to a man who has always acted as a chief executive with unchallenged authority to take the big decisions. Succession will be debated, especially inside the bjp. Even if Mr Modi completes a full term, a fourth one is now less likely.

Mr Modi’s diminished stature brings dangers. He could resort to Muslim-bashing, as in the past. That would alienate many Indians but might possibly repair his authority with his base and the BJP. Coalition government makes forcing through economic changes harder. The small parties may gum up decision-making as they demand a share of the spoils. India’s growth is unlikely to fall below its underlying rate of 6-7%, but higher welfare spending may lead to cuts in vital investment. That explains why the stockmarket initially fell by 6%.

These dangers are real, but they are outweighed by the election’s promises. Now that the opposition has been revived, India is less likely to become an autocracy. The BJP and its allies also lack the two-thirds majority they needed to make many constitutional changes. Disappointed investors should remember that most of the value of their assets lies beyond the next five years and that the danger posed by democratic backsliding was not just to Indians’ liberty. If strongman rule degenerated into the arbitrary exercise of power, it would eventually destroy the property rights that they depend on.

More open politics also promises to boost growth in the 2030s and beyond. The election shows that Indians are united by a desire for development, not their Hindu identity. Solving India’s huge problems, including too few good jobs, requires faster urbanisation and industrialisation, which in turn depend on an overhaul of agriculture, education, internal migration and energy policy. Because the constitution splits responsibility for most of these areas between the central government and the states, the centralisation of the past decade may yield diminishing returns. That means the next set of reforms will require consensus. There are precedents. Two of Mr Modi’s main achievements, tax reform and digital welfare, are cross-party ideas that began under previous governments. India has had reforming coalitions before, including BJP-led ones.

The question facing India is therefore whether Mr Modi can evolve from a polarising strongman into a unifying consensus-builder. By doing so, he would ensure that India’s government was stable—and he would usher in a new sort of Indian politics, capable of bringing about the reforms needed to ensure India’s transformation can continue when the Modi Raj is over. That is what real greatness would look like, for Mr Modi and his country. Fortunately, if he fails, India’s democracy is more than capable of holding him to account. 

8.It's Back To The Future For Chandrababu Naidu

It is a tag that will continue to follow N. Chandrababu Naidu, who will once again have to don the mantle of an eternal builder with the Telugu Desam Party's resounding victory in Andhra Pradesh, a state which people say has gone back at least a decade over these past five years. But if the task of rebuilding smacks of déjà vu for him, then it is something Naidu will enjoy to the hilt.

He gained international recognition by building Hyderabad into a global IT and investment destination during his nearly nine years as the Chief Minister in the erstwhile combined state. If he appeared to rejoice being hailed as a visionary, so did the industry and the media who needed a CM who meant business and called him the "Laptop Babu" and "Powerpoint Naidu", among a host of other fawning titles.

He took it upon himself to build brand AP and Hyderabad, to garner what appeared to be disproportionate investments for it. With the likes of Microsoft, IBM, Dell, Deloitte, Computer Associates and Oracle among a host of others setting up shop in the city and wresting the Indian School of Business from Maharashtra, only strengthened Brand Naidu and Hyderabad. The Hi-Tech City and christening Cyberabad by including various IT zones and the fledgling Financial District became the calling cards for international investments and featured on every presentation with the Ramoji Film City.

He will, once again play two familiar roles from his past—that of a builder and a kingmaker at the Centre, Naidu will find himself in a comfort zone. The work in the residual Andhra Pradesh was still incomplete when he demitted office in 2019 after the loss at the hustings.  In fact, the little that he was able to do was undone by his successor Jagan Mohan Reddy. Furthermore, he gets a chance to play a significant role in national politics once more. The question is, will we see the successful Naidu of the past this time round?