Mark Mobius-kF2--621x414@LiveMint-2

For Livemint: How Mark Mobius saw India over the years

    This post was first published on Livemint.

    Mark Mobius might not have been the best-performing emerging-market fund manager, but his name has been more synonymous with the idea of investing in businesses from developing economies than any other.

    So, on 31 January, when the 81-year-old retires from Franklin Templeton Investments after 30 years, it will mark the passing of an era.

    This period has seen him embrace, in sequence, Hong Kong, South Africa, South Korea, Brazil and China.

    In some year or the other, beginning 1995, each of these five countries led the portfolio of Templeton Emerging Market Investment Trust—the best-known Templeton emerging-market investing vehicle that Mobius managed. But never India, despite the unstinting optimism he voiced for the country in public. India was a steady crawl in the Trust’s portfolio: from 0.6% in 1995 to 3.9% in 2005. In 2010, this spiked to 14.5%—an all-time high—and two Indian companies featured in the fund’s overall top 10 holdings.

    But by March 2015, this had fallen to 5.6%. By March 2016, the Trust’s exposure to India increased to 9% and the number of Indian stocks to 12.

    But in the year when demonetisation happened and the Goods and Services Tax (GST) became imminent, the Trust cut its India exposure to 6.1%, its sixth largest holding in a portfolio worth £2.1 billion.

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    The Trust’s Indian holdings have been mainly in stodgy, old economy, industrial businesses. By contrast, the latest released list of top 10 holdings of the fund—in which there’s no Indian company—consists entirely of consumer and information technology (IT) businesses.

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      Pin code 700001 hosts 37 shell companies

        Last week, Securities and Exchange Board of India (Sebi) named 331 listed companies as suspected “shell companies”—companies that exist for the purpose of financial manoeuvring—and asked stock exchanges to initiate action against them. As many as 141 of these were registered in West Bengal, followed by 53 in Maharashtra and 35 in Delhi.

        A more granular look into their registered addresses shows that of the 284 companies for which pin codes could be ascertained, 37 were formed in just one of the over-19,000 pin codes in India: 700001, in Central Kolkata. This area has long been known to be a thriving hub of lawyers and chartered accountants who specialize in creating so-called “shell companies”. And while Kolkata has ceased to be the epicentre of such a business, which has spread to other cities such as Mumbai or Delhi, several thousand shell companies continue to be registered in the city.

        Since January 2010, about 688,000 companies have been formed in India. Of these, 13,274 companies (not necessarily shell companies alone) have been formed in just this pin code in Kolkata, making it the most thriving pin code for company formation. It’s followed by pin code 110092 in East Delhi, with 11,000 companies. The top 15 pin codes for company formation since January 2010 account for about 11.5% of the 688,000 companies. Many of these are thriving commercial locations, such as Gurgaon, and many of those companies are engaged in genuine businesses.

        But the number of companies formed by month in pin code 700001 in central Kolkata is almost an alternative history of the Indian economy, one that bears little relation to the “official” story. Monthly data since January 1991 shows that, in 11 months, the share of this pin code in total companies formed in India has exceeded 5%. In one month, March 2012, its share rocketed to 11.6%, when 1,440 companies were formed here, just prior to the notification of new income tax rules that would have affected how shell companies did business.

        Data source: Ministry of corporate affairs database on registered companies
        Data has not been adjusted for companies that may have been struck-off, deregistered, etc.

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          Non-Life Insurance: The Lesser-Known Growth Story

            The well-known story of recent growth in financial services is of mutual funds: a trebling of assets under management in the last five years. There’s a lesser-known story of growth in this industry playing out that is equally noteworthy: non-life insurance, which has doubled its gross premiums collected in the last five years, and is now readying to see its first stock market listings in the form of GIC and ICICI Lombard General Insurance.

            In the growth story of non-life insurance, there are parallels with the mutual fund industry. One, as with mutual funds, the recent growth has been led by segments servicing individuals (as opposed to institutions). Motor, health and personal accident—all retail segments—are three of the four biggest segments in non-life insurance, and they have grown the most in the last five years.

            Two, a lot of mutual fund growth came from value (rising share prices) and not volume (new investors). Similarly, in non-life insurance, though gross premiums have increased by 118% in the last five years, the number of new policies issued has grown only 42%. In other words, the increase in unit premiums in health and motor (especially third-party) is driving revenues.

            Three, private sector insurers continue to advance on the four public sector players, who enjoyed a monopoly till the opening of the sector in 2000. Between 2011-12 and 2015-16, growth in new policies issued by private players is nearly twice that of public sector players.

            Private players also score on profitability, with the leading ones having a claims ratio that is lower than the big public sector players.

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              How 18 BJP states in 2017 is different from 18 Congress states in 1993

                Before the Bharatiya Janata Party (BJP) now, the last time a political grouping was in control of 18 states was 24 years ago. But there are differences.

                When it wrested Nitish Kumar’s Janata Dal (United) from the Grand Alliance—a coalition of parties in Bihar against the BJP—and propped him to form a new government in the state, the BJP effectively annexed state number 18. Today, either the BJP or one of its 48 partners in the National Democratic Alliance (NDA) are in control of 18 of the 30 states in India.

                The last time a political grouping enjoyed this kind of spread was 24 years ago, in 1993. Back then, it was the Congress, then the dominant party in Indian politics. In December 1993, when there were 26 states where elections were held, the Congress controlled 15 states by itself and one via an alliance. Two others were held by CPI (M), which was providing outside support to the Congress government at the Centre then.

                Yet, there are differences between the groupings of 1993 and 2017.

                One, today, we are firmly in the era of coalitions and alliances, typified by the BJP-led NDA (formed in 1998) and the Congress-led UPA (formed in 2004). But in 1993, broad alliances at the national level were yet to become the norm. It’s on the strength of such alliances that the Congress and its partners have come close to the 18-state mark a couple of times since, notably in 2006, when the UPA had 17 states.

                Two, seen through the prism of national politics, the BJP spread of 2017 appears more potent than the 1993 spread of the Congress. The 18 BJP/partner states—many of which are the large states in the heartland—of 2017 sent 66% of MPs to the Lok Sabha in 2014, against the 48% the Congress’ 18 states sent in the 1991 national elections. Further, 68% of India’s population (as per Census 2011) resides in the 18 states controlled by the BJP and its partners against 45% for the Congress’ 1993 spread (as per Census 1991).

                howindialives.com is a database and search engine for public data

                Source: Election Commission of India

                 

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