Indian companies may not even need a rate cut from the Fed

A solar power plant in Tuticorin, India, on Wednesday, March 20, 2024.

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Emerging markets have been on tenterhooks for much of this year as the Federal Reserve has been hinting at rate cuts.

Historically, as U.S. interest rates fall, the attractiveness of powerful countries Dollar gradually favoring other currencies.

However, hopes of such relief were dashed last week when expectations of a first rate cut were pushed back to September, and likely further to December.

Indian companies may not care this time.

“In fact, from a business perspective, all these rate increases haven’t really had any impact on us,” Chief Executive Sumant Sinha said. renewIndia’s largest clean energy producer and Nasdaq-listed company told CNBC’s Inside India.

Even as the Reserve Bank of India joins global peers in raising interest rates, Indian businesses continue to grow at an unprecedented pace. ReNew, for example, reported positive sales momentum in its latest full-year results. Strikingly, it also became profitable for the first time as a public company.

ReNew seems to have straddled the US and Indian markets neatly. The $2.3 billion company operates entirely in India, but its largest shareholders are institutions in the United States and Canada. It has increased its dollar-denominated debt, but it has cautiously hedged against the risk of a weaker dollar. rupee.

The savvy approach paid off, and lenders took notice. Societe GeneraleThe French bank recently agreed to lend it up to $1 billion over the next three years amid current market conditions. In addition, non-bank financial institutions have also provided billions of dollars in power to the company, which currently has the capacity to produce approximately 10 gigawatts of clean electricity.

“In the last 18 months, we have actually refinanced nearly $1 billion worth of international bonds through the rupee market,” Sinha said. “In fact, by taking some of the steps we’ve been able to reduce borrowing costs by almost 60 basis points.”

This isn’t 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 developed economies, India’s interest rate regime in 2024 will not be any different from that in 2018.

This is in stark contrast to the negative interest rates faced by the Eurozone or the challenges faced by Japan today. During the Covid-19 pandemic, interest rates in India were just 4%.

Since then, however, gross domestic product growth has only accelerated in the world’s fifth-largest economy. Credit rating agency Fitch this week raised its forecast, predicting that India’s economy will grow by 7.2% this year.

But what if financial conditions tighten further? Shouldn’t corporate borrowers start defaulting at higher levels in the long term?

“We have not seen any NPLs emerging,” said Rahul Jain, head of India research at Goldman Sachs.

ReNew Energy’s shares are down 16% this year despite forecasting that earnings per share will triple over the next two years. The stock sold off along with others in the sector that face unique fundamental issues. at the same time, iShares Global Clean Energy ETF in a downturn, while S&P 500 Index Reaching new highs.

There is a disconnect between the economy, the stock market and individual stocks.

While companies are able to grow and even make money when interest rates are high, their stock prices don’t always reflect this.

Perhaps there is a case to be made as to whether Wall Street needs a rate cut more than Main Street.

Asked if he was counting down the days to a rate cut, Sinha said: “Not just counting down, but waiting very, very eagerly and have been waiting for a long time.”

need to know

India and the United States have vowed to strengthen trade ties. National Security Advisor Jake Sullivan visited the country this week, the first by a senior U.S. official since the election results were announced. After meeting with Modi, the two sides promised to strengthen defense and technological cooperation.

Modi’s growth ambitions cannot ignore four key areas. Prime Minister Narendra Modi has set an ambitious goal of making India a developed economy by 2047, a century after it gained independence from Britain. CNBC’s Charmaine Jacob highlights four areas Modi must focus on if he wants to make this a reality.

Bond inflows hit a ten-year high. This month, foreign investors will buy $2 billion worth of Indian government bonds, the highest in a decade, and the bonds will be included in a widely tracked JPMorgan index. More than $200 billion in assets track the benchmark, with allocations to India set to gradually rise to 10% over the next 10 months.

India records ‘longest’ heat wave. Delhi, India’s second most populous city, is facing a severe water crisis as temperatures soared above 45 degrees Celsius (113 degrees Fahrenheit) in parts of the country. CNBC compiled photos from across the country, with the dry spell expected to continue over the next four to five days.

What happened to the market?

Indian stocks have been rising slowly but have maintained their year-to-date gains since the election results were announced. this nifty 50 The index is set to gain 0.4% this week. The index has gained 8.45% this year.

The benchmark 10-year government bond yield in India remains relatively depressed, with the yield falling below the 7% mark, close to historical lows.

Raamdeo Agrawal, chairman of Motilal Oswal Financial Services, one of India’s largest stock brokers and asset management company, said on CNBC television this week that private investment will pick up in the next six months when consumer growth begins. He expects the benefits of increased capital spending, which does not rely on government spending, to be felt over the next two years.

Meanwhile, Rahul Jain, head of India research at Goldman Sachs, told CNBC’s Tanvir Gill that the “Goldilocks” period for Indian banks is over as they come 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 his caution, Goldman Sachs’ Jain prefers Indian private banks to state-owned banks.