Demand driven by need for greater digitalisation
The Indian market rose slightly in October but, due to a weakening of the currency, ended with largely unchanged share prices. Carnegie Indienfond also ended the month unchanged.
The focus in India this past month has been the reporting for the second quarter. Many large companies have shown better results than expected. As the economy is now largely back to normal activity, companies are more upbeat about the future. IT service companies reported strong results and growing order books. Demand is being driven by global customer needs to expand and increase their digitalisation as the pandemic places new demands on developing services online, regardless of the industry in which they operate.
India’s harvest festival, Diwali, is bringing a pent-up need to buy capital goods after the spring lockdown. Cars, motorcycles, air conditioning and other consumer goods are all showing strong sales.
The fund reduced its holding in Reliance Industries this month. After doubling in value since April, most of the positive news for the company feels priced in. Reliance provided a constant flow of positive messages during the summer and autumn, and succeeded in raising new capital through sales of parts of both Reliance Jio, its telecom operator, and Reliance Retail, which develops retail in India. The acquisition of Future Group encountered a problem when Amazon, which was already invested in Future Group, blocked the move and claimed its right of first refusal.
The fund instead invested in Icici Bank, which we have owned on several occasions before. The bank’s interim report for the second quarter showed a strong balance sheet with a lower risk of new bad debt losses than previously feared. Growth in new lending was moderate, but given the economic situation some caution is preferable right now. Icici Bank has low exposure to small and medium-sized companies, which is the segment where we are seeing the biggest problems at the moment. And it has not expanded as aggressively in unsecured consumer credit as some other banks have in recent years.