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Analysis

2019 and beyond: Focus on premiumisation, decentralisation

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India Rupee

As 2018 ends and we head into 2019, it would be worthwhile to an investment horizon and identify important strategies that investors and entrepreneurs could explore to create businesses that can benefit significantly from growth in the Indian markets.

As incomes rise steadily in India, “premiumisation” business models will gain traction among investors in the foreseeable future. The ability of businesses to create high-quality premium products and services to cater to the upper end of the market needs renewed attention. While the “premiumisation” theme has been applied in things like baby products and food, there is a need for the trend to pick up further steam.

The “premiumisation” theme applies as much to consumer businesses as to services and infrastructure providers. In largely commoditised businesses such as offices, logistics and warehousing, the ability to create a niche — as demand for high-quality assets increases — will be the driver of the “premiumisation” theme.

For example, with the economy growing, the demand for high-quality office space should see further expansion, driven primarily by the services industry. As the industry becomes more significant in size (in both absolute terms and percentage terms), one can expect additional demand for top-notch office space in the form of both buildings and office parks. The ability to deliver high-quality premium assets in land-constrained urban areas will help businesses stand out.

Additionally, business opportunities in areas such as specialised premium warehousing should gain traction. With increasing healthcare penetration and greater longevity, industries such as pharmaceuticals will demand high-quality, sophisticated warehousing and logistics infrastructure to cater to the growing demand. Infrastructure businesses that can create the necessary logistics infrastructure will be able to charge a premium for the asset in a sector that is primarily viewed as a commoditised service.

Essentially, for patient capital, long-term structural trends present opportunities to create premium assets that benefit from the changes sweeping through the Indian economy. Whether it is trends such as increased per capita healthcare expense and the greater longevity that creates opportunities in the pharmaceutical sector or patterns such as increased urbanisation, nuclear families and higher women’s work participation that creates the need for online grocery delivery, the essential point is that long-term trends will create the need for premium specialised infrastructure. Such infrastructure creation is full of investment opportunities.

The coming year and beyond also present both investors and the government opportunities to assess additional sectors such as energy storage and water, where decentralised infrastructure can have a significant role to play. While subsidies are an essential component of a policy package for accelerating the creation of infrastructure, financially viable platform structures that can help aggregate assets can be a game changer for decentralised assets that have significant demand.

It is essential to channel adequate funding towards the decentralised infrastructure sector, such as water assets or energy storage assets, to expedite infrastructure creation. For generating sufficient funding for an infrastructure asset at a rapid pace, it is vital that the infrastructure asset moves towards becoming an asset class eventually.

For instance, two themes that have received significant attention are “clean energy” and “access to clean water”. Decentralised infrastructure platforms can contribute significantly to these two aims. It is also vital to not look at decentralised infrastructure as a replacement for centralised systems, but rather as an alternative solution for specific scenarios.

There have been innovative models that are being utilised where investors are using platforms to aggregate distributed water treatment businesses catering to medium- to large-sized businesses as opposed to centralised water treatment businesses that require large-scale water transportation infrastructure to be created. Specialised industries the world over are benefitting from decentralised water solutions. The years ahead will provide opportunities for infrastructure investors to utilise investment platform-type structures to aggregate decentralised assets further. Such innovative solutions need to get a further impetus.

Most importantly, the government must also realise that decentralised infrastructure is essential to complement the larger infrastructure-creation process and hence must ensure that policies help promote the sector.

The year ahead provides an opportunity to innovate to create investment opportunities that deliver both investment returns and broader societal benefits. Strategies such as “premiumisation” and “decentralised infrastructure” will help cater to demand in a rapidly-growing consumer market through financially-viable business models.

By Taponeel Mukherjee

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are personal. He can be contacted at [email protected] or @Taponeel on Twitter)

IANS

Analysis

Eliminated JeM leadership within 100 hrs of Pulwama attack: Army

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Dantewada Attack

Srinagar, Feb 19 (IANS) The Indian Army on Tuesday said within 100 hours of the February 14 Pulwama attack on a CRPF convoy that left 40 troopers dead, it eliminated the Jaish-e-Mohammad (JeM) leadership in the valley that planned and executed the deadly carnage.

This was stated by Lt Gen K.S. Dhillon of the 15 Corps Commander, at a joint press briefing here in Jammu and Kashmir, along with officials state police and the Central Reserve Police Force (CRPF).

He also made it clear that the Pulwama attack was carried out by the JeM, which is based in Pakistan, with active support of the Inter-Services Intelligence (ISI) and the Pakistan Army.

“Within 100 hours of the Pulwama terror attack, we hit the JeM in the Kashmir Valley which was being handled by the Pakistan-based JeM,” Dhillon said.

He also added that the details of the two terrorists and one local conduit who were killed in the operation was shared on Monday.

“The local commanders, most of them Pakistanis, who were in-charge of controlling, coordinating, fabricating and executing the attack on Thursday, were the top leadership of the JeM in the valley,” Dhillon said.

Since the JeM leadership was already being tracked, the Indian operation was launched on Sunday night on specific information of the module.

Giving a stern warning to sympathisers of the terror movement in the state, he said: “Anyone who picks up a gun in Kashmir will be eliminated, unless the person surrenders.”

“I would also like to tell one thing to the parents of the Kasmhiri youths, especially the mothers, as I understand that they have a key role. Through you, I request the sons to surrender and join the main stream,” the officer said.

In the biggest crackdown after the February 14 attack by a suicide bomber that left 40 CRPF troopers dead in Pulwama district, the security forces ringed a militant hideout in Pinglena village, just 10 km from the Thursday’s terror attack site, triggering a gun battle Sunday overnight that continued intermittently till Monday evening.

They killed three militants of the Pakistan-backed JeM, two of them Pakistani nationals identified as Kamran and Abdul Rashid alias Ghazi Umar. Besides, a Major, three soldiers and a civilian were also killed in the initial burst of gunfire by the militants.

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Analysis

Dealings of European missile manufacture under scanner

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Rafale Fighter Jet

New Delhi, Feb 17 (IANS) A leading European arms manufacturer MBDA, which supplies missiles for the Rafale jets, has come under the scanner of probe agencies here for its suspected links with lobbyist Deepak Talwar, who was extradited from Dubai last month.

The country head of MBDA, Loic Piedevache, has been summoned by the Enforcement Directorate to appear before it on Monday in connection with the probe relating to the company’s links to Talwar, who is believed to have steered several deals with Airbus, which holds a stake in MBDA, during the UPA regime, according to sources.

Infrastructure major Larsen & Toubro had entered into a joint venture with MBDA to supply missiles and missile systems to the Indian armed forces.

L&T holds 51 per cent stake in the joint venture, L&T MBDA Missile Systems, and had identified defence as one of the key drivers for achieving growth in the sector.

The sources claimed that apart from questions on the company’s engagement with the Indian forces, Piedevache would also be questioned on the alleged payments to Talwar’s NGO. Advantage India, to the tune of Rs 88 crore between 2012 and 2015, from MBDA and Airbus.

Later, the entire money was said to have been withdrawn in cash by using “fake purchases”, the sources said.

Analysts said this was probably a rare occasion when the India head of a leading international firm was being summoned by a probe agency.

Piedevache has been heading the company’s operations in India for a decade. The Mirage upgrade programme and Rafale were signed during Piedevache’s tenure in India and he could be privy to information, the sources said.

“If required, the probe agency may also summon group export director Jean-Luc Lamothe. First of all, Piedevache would be asked to explain the company’s payments to Talwar’s NGO,” the sources said.

Piedevache could not be reached for his comments. An MBDA spokesperson said the company would support the authorities in their probe. It maintained that it had supported social development initiatives in India as part of corporate social responsibility, which included some payments to the NGO.

The company is involved in the Rs 30,000 crore offset programme associated with the 36 war planes.

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Analysis

Rupee weakened against $ in choppy weekly trade

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India Rupee

Mumbai, Feb 17 (IANS) In a choppy week’s trade, the Indian currency weakened against the US dollar to close above the 71 a dollar mark on Friday, owing to a sharp rise in crude oil prices, turmoil in the equity markets and uncertainty around the US-China trade relations.

In what could translate into further trouble for the domestic currency, analysts see an upward move of 6 to 7 per cent in the Brent crude prices in the coming week.

The rupee lost heavily towards the end of the week – over 70 paise in the last three trading session – as traders reacted to the sanction on Venezuela and production cut by OPEC and Saudi Arabia.

Sajal Gupta, Head Fx & Rates Edelweiss, said “technically … crude now looks set for another 6-7 per cent rise” which would mean that the rupee was likely to depreciate further in the coming sessions. “And if Rs 71.80 per dollar is broken, we can head towards Rs 72.50 mark.”

Among other factors impacting the currency, Gupta said, with crude and dollar index giving breakout, rupee would remain under pressure. Trade deficit data released on Friday post market was also not very encouraging with monthly deficit touching almost 15 billion dollars.

“Political tensions would also remain heightened with key leaders vowing strong retaliation in wake of the biggest terror attack in the Kashmir valley.”

Explaining the factors which has caused volatility, Anindya Banerjee of Kotak said the currency markets largely depend on the capital flows … and right now the fear of a possible retaliation by the government in response to the Pulwama attack is having an affect.

“The context of the whole event is also important because (Lok Sabha) elections are around the corner,” Banerjee said.

Also, the currency losing against the dollar and rising crude oil prices was a double whammy for the bond markets, he added.

On the global front, discussing the factors affecting the currency, Banerjee said, the Chinese economy was very fragile right now and moreover investors were looking for developments in the US-China trade talks.

However, Gurang Somaiya, currency analyst, Motilal Oswal, felt that the rupee was protected from any major weakness as “Foreign Institutional Investment (FII’s) came around good”, especially in February.

According to data from the bourses, FII has seen inflows worth Rs 1,096 crore in February.

India on Friday revoked the Most Favoured Nation Status (MNS) of Pakistan and has warned that more stern actions will follow the attack in Pulwama. Additionally, equity markets have declined for 6 straight sessions showing weak investor sentiments.

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