India wants to make homemade guns and bullets

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, but why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

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In today’s edition:

• Desi bullet
• Is oil telling something about the global economy?
• Men are grooming, and FMCG companies are excited!

Desi bullet

India allocates 2% of its GDP and 13% of its total budget to defense—no small amount. For decades, we’ve relied heavily on foreign imports for our military needs, spending billions on weapons and equipment made abroad. But now, things are changing—and fast.

Source: TradingEconomics

Recently, the Defence Acquisition Council (DAC) approved a massive ?1.5 lakh crore worth of defense projects. And here's the exciting part: 99% of that money is earmarked for Indian-made equipment. We're talking about futuristic combat vehicles, air defense systems, and next-gen patrol vessels for the Coast Guard.

But that's not all. Just a few days ago, on September 2nd, the Cabinet Committee on Security (CCS) approved another big order—240 aero engines worth about ?26,000 crore for the Su-30 MKI fighter jets, the backbone of our Air Force. And who's building them? Hindustan Aeronautics Limited (HAL), India’s aerospace giant.

So, why all the fuss about making things in India? Let’s take a step back and look at the bigger picture.

For decades, India has been one of the world's largest arms importers. In fact, between 2018 and 2022, we accounted for 11% of global arms imports. In 2022 alone, India's arms imports were valued at over $2.8 billion. That's a lot of money that could have stayed within India, benefitting our defense companies instead of flowing out to foreign suppliers.

Source: Visual Capitalist

But it’s not just about the money. Relying on other countries for crucial defense equipment poses a strategic risk. What if we’re in a conflict and those countries cut off supplies? That's why the Indian government has been pushing hard to manufacture defense equipment at home. The goal? To transform India from one of the world's biggest defense importers into a major defense exporter. The Department of Defense Production is aiming to produce over 4,500 defense items domestically.

How is this transformation happening? It's a multi-pronged approach:

• For years, defense production was mostly limited to public sector units. Now, private companies like Tata, Mahindra, and L&T are being actively encouraged to join the defense manufacturing space.
• We're not shunning foreign expertise either. Instead, foreign defense companies are being encouraged to set up shop in India, transfer technology, and manufacture locally.
• The government is pouring money into defense R&D. The Defence Research and Development Organisation (DRDO) is working on everything from missiles to naval systems.
• Policies like the Strategic Partnership model aim to build a robust defense manufacturing ecosystem in India.

We’ve already made significant strides in developing indigenous defense equipment—think Tejas fighter jets, Arjun tanks, and the INS Vikrant.

Now, back to those recent announcements. The ?1.5 lakh crore project covers a wide range of equipment, from Future Ready Combat Vehicles (FRCV) to Air Defense Fire Control Radars and Next-Gen Offshore Patrol Vessels. The aero-engine order for HAL is a major leap forward, as engines are the heart of any aircraft. By manufacturing these complex components in India, we’re climbing the value chain in aerospace manufacturing.

While the focus is on self-reliance, India is also ramping up its defense exports. The government has set an ambitious target of achieving $5 billion in defense exports by 2025. In 2023-24, India hit a record ?21,083 crore in defense exports, with over 75 countries buying Indian defense equipment. Interestingly, 60% of these exports came from the private sector, signalling a major shift from the public sector dominance we saw in 2020.

Source: KPMG

To further boost domestic production, the government has established two defense industrial corridors—one in Uttar Pradesh and another in Tamil Nadu—creating ecosystems for defense manufacturing by bringing together industries, research institutions, and public enterprises.

Of course, this transformation won’t happen overnight. Developing complex defense systems takes time, expertise, and lots of trial and error. There will be challenges, from technological hurdles to bureaucratic red tape. But the momentum is undeniable. In the past year, defense stocks have surged between 3% and 300%—quite the ride!

Source: Tijori

Is oil telling something about the global economy?

Crude oil prices have recently plunged to nine-month lows. WTI crude is down about 6.48%, while Brent has fallen 4% in the past five days. Brent is now hovering just above $73 a barrel, erasing all of this year's gains.

Bloomberg's commodities columnist, Javier Blas, made an interesting observation on Twitter. Adjusted for cumulative inflation, oil prices are now at the same level as they were 20 years ago. This is a huge shift because, just last year, crude prices soared to $120 after Russia invaded Ukraine. But now, OPEC+ countries are suffering from a loss in purchasing power—an oil barrel buys fewer goods and services today than it did decades ago.

There are both demand and supply reasons for this drop in oil prices.

Demand Concerns:

• China’s economy is showing significant signs of weakness. Factory activity has been declining for four straight months, and new home sales are also falling. The real estate sector, a major consumer of diesel, is particularly affected.
• China’s oil imports have dropped significantly, with July and August seeing 800,000 fewer barrels per day compared to last year. Refineries are operating at lower rates, and Q3 throughput is expected to be well below last year’s levels.
• The U.S. manufacturing sector is also struggling, contracting for five consecutive months. This has raised fears of a broader global economic slowdown, which could further dampen oil demand.

Supply Issues:

• Earlier this week, there was a crisis in Libya, leading to a shutdown in oil production. However, this appears to be nearing resolution, which could bring over 500,000 barrels per day back to the market, raising concerns of oversupply.
• Despite weak demand, OPEC+ plans to increase output by 180,000 barrels per day in October. This decision has added to worries about oversupply in an already weak demand environment.

Market sentiment is currently bearish, with speculative traders increasing short positions and reducing long positions to 52-week lows. This combination of weak demand, especially from China, and the prospect of increasing supply has created a pessimistic outlook for oil prices. The question now is whether OPEC+ will reconsider its production increase to avoid a growing supply glut.

There are both demand and supply reasons for this drop in oil prices.

Demand Concerns:

• China’s economy is showing significant signs of weakness. Factory activity has been declining for four straight months, and new home sales are also falling. The real estate sector, a major consumer of diesel, is particularly affected.
• China’s oil imports have dropped significantly, with July and August seeing 800,000 fewer barrels per day compared to last year. Refineries are operating at lower rates, and Q3 throughput is expected to be well below last year’s levels.
• The U.S. manufacturing sector is also struggling, contracting for five consecutive months. This has raised fears of a broader global economic slowdown, which could further dampen oil demand.

Supply Issues:

• Earlier this week, there was a crisis in Libya, leading to a shutdown in oil production. However, this appears to be nearing resolution, which could bring over 500,000 barrels per day back to the market, raising concerns of oversupply.
• Despite weak demand, OPEC+ plans to increase output by 180,000 barrels per day in October. This decision has added to worries about oversupply in an already weak demand environment.

Market sentiment is currently bearish, with speculative traders increasing short positions and reducing long positions to 52-week lows. This combination of weak demand, especially from China, and the prospect of increasing supply has created a pessimistic outlook for oil prices. The question now is whether OPEC+ will reconsider its production increase to avoid a growing supply glut.

Men are grooming, and FMCG companies are excited!

Recently, Emami, a major FMCG player in India, acquired a men’s personal care startup called ‘The Man Company.’ Emami previously owned a little over 50% of the startup, but with the growing market potential, they’ve now decided to increase their stake to 100%.

With this acquisition, Emami aims to expand its footprint in the premium male personal care segment, which has been growing rapidly in India. Personal care, for context, includes products in areas like skincare, haircare, oral care, body care, and bath and shower essentials.

Interestingly, Emami isn't the only one showing interest in this space. Back in 2020, another FMCG giant, Marico, bought 100% of a men’s personal care startup called Beardo. Similarly, Colgate-Palmolive acquired a 14% stake in ‘Bombay Shaving Company,’ a startup in the same category, a few years ago.

This got us curious, leading to a deeper dive into the men’s personal care industry. We wanted to understand what’s fueling the growth in this space and why companies like Emami, Marico, and others are so keen to get involved.

The men’s personal care market in India has seen a remarkable evolution. A few years ago, it was almost nonexistent, but today it’s valued at over a billion dollars and is expected to grow significantly in the coming years.

The key driver behind this growth is increasing awareness among men about health, wellness, and grooming, influenced by changing cultural norms. The rise of social media celebrities and influencers has also contributed, creating entirely new product categories and normalizing the use of personal care products among men.

Traditionally, men’s grooming was limited to shaving products like razors and creams. However, today it encompasses a wide range of solutions, including beard care, skincare, haircare, and fragrances. Consumer preferences are evolving rapidly, and thanks to e-commerce, trends that were once limited to urban metro markets have now spread across the country. The demand for premium products is no longer restricted to tier-1 cities; it’s expanding nationwide.

Let’s put this into perspective with some insights on wealth distribution in India.

Roughly the top 10% of India’s income pyramid consists of the wealthiest consumers, who are early adopters of new trends and premium products. But there’s another fast-growing segment—the next 30%—which includes around 400 million people. This group has rising disposable incomes and is shifting from buying essentials to aspirational products. Importantly, this demographic is no longer confined to major cities.

Here’s where a challenge arises. Startups, while great at product innovation, branding, and building loyal customer bases, often struggle to scale beyond urban markets due to limited distribution capabilities. This is where FMCG companies come in. With deep pockets and vast distribution networks that reach tier-2, tier-3, and rural markets, they can provide the scale that startups lack.

This is likely why FMCG giants like Marico and Emami are keen to acquire startups in the men’s personal care space. For these companies, it means gaining an established brand with a loyal fanbase, allowing them to avoid the challenges of building from scratch. For startups, it’s a win too, offering a strong exit opportunity and the potential to grow beyond their initial reach.

In the end, it’s a mutually beneficial partnership—startups get the muscle to scale, and FMCG companies tap into a new, rapidly growing market.

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