India’s telcos have started to deploy 5G, bringing faster speeds and greater capacity to customers.

The early days of February were characterized by a couple of unexpected developments: first Fed Chair Powell, though resolute about a 2% inflation target.

India’s IT expertise may benefit from rising demand for AI, where interest appears to have spiked post latest updates to OpenAI’s ChapGPT, while the metaverse may also prove to be a future growth driver.

Neither Russia nor Ukraine appears willing to back down from their demands as to what each needs before they can agree to negotiate for peace. Europe’s imposition of a price cap on Russian oil has, so far, no real consequence, but President Putin has threatened a response.

India’s fuel consumption continued to climb in November, up versus the prior month and same period last year. Similarly, overall power consumption increased, with peak power met above levels experienced in the same month as the last few years.

The most recent CPI print, which followed yet another robust non-farm payrolls report, finally showed core MOM CPI slowing down to 0.3% vs. an expected 0.5% and a prior month 0.6%, triggering a strong risk-on rally, with the expectation that the end of the cycle of rising rates is at hand.

India has made solid progress adding utility-scale solar capacity this year as stable, affordable, and from a clean resource energy is critical to both national security and meeting the demands of what appears to be on the cusp of becoming the world’s largest population.

The Chinese economic outlook remains cloudy, with the real estate bubble bursting and continuing Covid-related “dynamic zero” shutdowns impacting demand. One example – smartphone sales in China have been quite weak for a few months. That said, most commodities are at prices below where they were at the start of the year.

Two recent fiscal developments – The CHIPS act and the Inflation Reduction Act – flow directly from these phenomena: deglobalization, the planet’s climate challenges and the worldwide post-pandemic inflation fight.

The UN recently suggested that India may emerge as the most populous nation next year. We view the approaching milestone as shining a bright light on the tall task ahead for the government as it seeks the right balance.

Despite the significant sacrifice to economic growth that such a move would entail, the European Union has put a 2022 year-end deadline to deeply cut its dependence on Russian oil.

The emergence of a new capex cycle in several sectors appears likely to offer tailwinds to growth across India for years to come. For example, Sanjay Goel, EVP of APAC for American Tower Corporation, recently highlighted plans to expand its tower base in India.

With all major economies confronted with worse-than-expected price rises, due to both supply-side and demand-side issues, the Fed announced in late April that it would act forcefully to quell inflation and keep raising rates, to dampen the demand side of our economy.

The inaugural SemiconIndia 2022 conference kicked off in late April during which PM Modi pitched India as a prime destination for semiconductor investment.

China continues to grapple with its Covid infections. While reported infection statistics appear miniscule compared to what the West experienced during the virus’s peak.

India’s ruling party, BJP, scored victories in 4 out of 5 recently concluded assembly elections, which may encourage further reform.

The Russia-Ukraine war has changed the near-term calculus even further for the White House with the debate between energy security and climate resilience becoming even more important.

India’s Covid trends are encouraging as daily infections have dipped below 5K paving the way for further reopening progress. We cannot help but notice India’s Omicron wave crested below Delta as well as the level experienced in the US.

With 4th quarter earnings mostly in the rear-view mirror and the results have been overall encouraging, it appears the market’s focus is pivoting to the macro: Russia-Ukraine developments, oil prices (again, Russia!).

At the moment, it appears that the Fed, captive to the consensus view that their actions have partly contributed to the current inflationary outlook, is now debating how quickly and how much the Fed Fund rates should be raised.

With mid-term elections in November, the ruling party is caught on the backfoot on inflation and therefore lacks ability to pass the signature Build Back Better legislation, which could have helped growth.

India’s vaccination effort continues to progress with 94% of the adult population having received at least one dose, and 68% fully vaccinated. Meanwhile, the country’s experience with Omicron appears to be trending in a positive direction

We think India increasingly screens well as a viable alternative to China as the IMF forecasts the country to deliver stronger GDP growth this calendar year.

With the Federal Reserve under pressure due to inflation and individual Fed governors speculating about quantitative tightening, it clearly signals that the era of easy money is over for now. 

The troubling headline numbers coupled with the fact that 2022 is a political year serve to concentrate everyone’s mind with respect to the big elephant in the room – inflation.

India’s vaccination drive has delivered at least one dose to 91% of the adult population, with 64% fully vaccinated, which stacks up well to similar metrics of 32% and 27% in South Africa, where Omicron’s infection rate presented as a steep yet relatively short-lived spike.

India appears to be entering a new capex cycle, a potentially strong tailwind for growth, which we attribute to the pandemic’s pull forward of eCommerce adoption and business digitalization.

The market’s current focus on inflation is appropriate and, in our opinion, partly driven by the ongoing decoupling of global supply chains (complicated by the pandemic) and the move toward a carbon-less energy future. Those seminal developments slow capital allocation by global corporations.

While a much-reduced Build Back Better reconciliation bill passed the House last month, we believe it is more likely to clear the Senate, in a more muted form, sometime early next year. As President Biden stated, when the Senate is 50-50, every Senator is a President.

India’s vaccination effort continues to progress with 87% of the adult population having received at least one dose, and 54% fully vaccinated. While Omicron has been detected in a handful of states, cases have been mild, providing some air cover for a balanced approach.

While political pressure and limited precedence may serve to boost the odds of a more aggressive approach, we think a gradual and very well telegraphed path to normalization would be viewed favorably by markets. 

The Indian Telecom companies raised prepaid plan prices by 20-25%, the bulk of which we think should drop to the bottom line. While we see more room for industry repair, we believe the sector may start to transition focus towards laying the groundwork for launching 5G.

It appears that the Fed leadership was perhaps too optimistic in stating that inflation would be transitory (i.e., Larry Summers was right – the fiscal stimulus was perhaps excessive). The Fed, earlier this month, signaled that it will begin tapering later this month and expects to be complete by mid-2022.

It appears that a much-reduced ($1.75?) trillion reconciliation bill will pass the House this week, to face scrutiny by key Senators who are focused on whether its expenditure could further exacerbate inflation – with all of the rhetoric playing out in the public domain.

Perhaps the most interesting development of late was Facebook’s formal launch of its Metaverse strategy, which we broadly view as the next iteration of the Internet, with new forms of integration between the physical and virtual worlds.

Apple noted India business doubled in F21 and Flipkart sold 2x the number of premium smartphones during its Big Billion Days Sales versus ‘20. Moreover, 1 in 5 was 5G capable, despite 5G service still in beta in just a handful of locations.

With the fight against global warming a growing priority around the globe and across sectors, we were pleased to see PM Modi highlight aggressive targets for India at COP26, which include the country sourcing 50% of energy needs from renewables by 2030.

At Jackson Hole, Chairman Powell clearly (to us, anyway) stated that he expects taper to begin before year-end, assuming no unforeseen developments. The market yawned on this news: it appears that this taper is so well telegraphed that it will not be anywhere like the last one.

In Chairman Gary Gensler, the markets finally may have someone at the SEC who is willing to confront (or at least attempt to tame) some of the excesses that the markets have thrown at conjured up, following the environment of the 2018-2020 period. 

The question that markets are likely debating is the impact of the approx. 3.5 trillion reconciliation bill on corporate and personal income taxes. One broker’s view is that the potential rise in corporate taxes could curtail corporate earnings growth.

We remain impressed by the resilience of India’s wireless sector during the pandemic, where data demand continues to climb. That said, we also believe the sector would benefit from regulatory reform, as India’s Department of Telecommunications…

India continues to screen well as a “growth at a reasonable price” (GARP) play versus global peers, particularly as 1QF22 earnings have boosted hopes for a solid FY22 with 30%+ projected NIFTY earnings growth, on the back of a strong 15% earnings growth in FY21.

India’s equity markets demonstrated strength in August, which has carried into the early days of September. This strength likely reflects investor focus on improving fundamentals as pandemic pressures ease as well as the continuation of easy money conditions…

These developments serve to reinforce our view of India’s digital infrastructure as a strategic investment opportunity, where we felt FQ1 results in the wireless space showcased resilient trends that should strengthen as the economy recovers.

The FQ1 earnings season has entered late stage and we view results as broadly better than feared with green shoots pointing to improving conditions on the ground.

Equity markets have perked up in the first half of August, which we suspect reflects a mix of vaccination progress, incremental government support, and a belief that inflation headwinds may prove manageable.

While the July non-farm payrolls number signaled a strengthening economy, the immediate market reaction was muted given the uncertainties about the timing, size and impact of the Fed’s expected taper.

There has been a significant change in the trajectory of tech platform companies in China in recent months, starting with the regulatory blocking of the Ant (Alipay) IPO.

The significant spread of the Delta variant in the southern and Southeastern states of the US has been unexpected and has chilled expectations of a larger GDP rebound in 2021.

Pandemic Inflation – the continued debate as to its transitory nature, especially after the recent June 0.9% m/m CPI and 4.5% y/y ex-food and energy figures, following on May’s elevated numbers.