Charts That Matter – September 2016

It gives us immense pleasure to share with you the September edition of our monthly “Charts That Matter” series. Some very interesting charts and observations in this edition. We have seen overall capex in India decline in recent years with low capacity utilization and leveraged corporate balance sheets. Assets sales are happening but at a rather slow pace. The public sector also wasn’t very forthcoming to pick up the slack created by weak private capex spending. However, in the last 2 years, we have seen the public sector taking up the mandate to kick start capex – especially in sectors like roads, railways and energy. In fact, actual public capex spending in the last 2 years has been almost at par with the budgeted spending – something not seen before.

On a very different note, the Indian consumer is not shy of spending and is becoming aspirational and stepping up discretionary spending. Car buyers are upgrading to the compact car segment (Rs.5-8lacs) from the erstwhile preferred mini segment (Rs.3-4 lacs). In a related observation, India’s share of global milk consumption has been rising rapidly and India is poised to replace the EU as the higher consumer of milk globally. As per the National Dairy Development Board, Indians now spend one-fifth of their overall food expenditure on milk. On the other hand, the Indian consumer is not a shy borrower anymore. Credit card outstanding has been growing at more than 25% in the last three years and now stands at ~Rs.42000cr – it has doubled since 2012.

Two global charts here. Caterpillar has been reporting negative machine retail sales in the last 3 years and the July sales de-growth at 18% is the second largest decline in the last 3 years. Caterpillar’s operating performance is a bellwether for global industrial capex; this is not a good sign for industrial recovery. Finally – in what is seen as a sign of credit tightening, the USD LIBOR (3 month) which moves largely in-line with the FED Funds rate has been creeping up even as FED Funds rates remain unchanged. LIBOR is the most benchmarked interest rate in the world with LIBOR linked transactions valued at more than $450tn globally. Borrowing costs for corporates/individuals vary with the LIBOR. Could this divergent trend between USD LIBOR and FED Funds push the FED into hiking rates?

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