"I am more bullish on India"

Feb 10, 2010

In this issue:
» Outlook on the US dollar
» 'Bonus' time for Indian pharma
» Dark future for power projects
» Time for yet another green revolution
» ...and more!!

------- FREE Newsletter -------
Dont't get tempted to gamble your savings on some 'hot tips'
Get The Honest Truth, the e-letter by Ajit Dayal, directly in your mailbox.
It's FREE. Sign Up Today.

"I am more bullish on India". This is not the first time that Stephen Roach has cited his favoritism towards India as an investment destination. The chairman of Morgan Stanley Asia has for long been an ardent admirer of China's manufacturing and export-driven success story. However, over the last 6 months, Roach has shifted his focus from the dragon nation to India due to the latter's potential to create more jobs. Roach says that for 10 years, China's GDP growth was a little over 10%. But during that period, the employment growth was hardly 1%. China had the fastest growing GDP, but they were the weakest in terms of incremental employment. In India, the employment growth was 1.5% per year. The incremental growth also filtered into a higher savings and investment rate for the economy. "India is treading into a sweet path with large part of its financial services sector being stable" says Roach.

More importantly, Roach is also confident of the Indian Government delivering on its promises. In terms of pushing reforms and fiscal consolidation and also in terms of sticking to its infrastructure development plans. Roach sounds very sanguine about the government's plans of building 20 kilometers of roads per day. He is also counting on the government to bring down fiscal deficit to 5.5% of GDP. We believe that while the government indeed has an uphill task to balance growth, inflation and fiscal deficit, prudence and timely execution will be the key.

Do you think the government will be able to deliver? Let us know

 Chart of the day

Data source: Statistical Outline of India, Business Standard

On an average, the earnings of an Indian has grown from Rs 16,729 a year in FY01 to Rs 40,141 in FY09. This makes it a commendable growth of 11% in each year of the past decade. The Central Statistical Organization has pegged the growth in per capita income for the current fiscal at 9%. This will bring the average income level to Rs 43,749 in FY10. Although the growth this year will be the lowest in the past 5 years, the same still heralds Indians into the new set of consuming class that global corporates want to woo. Having said that, net of inflation, the growth in income falls to 5% YoY and reduces purchasing power to that extent.

The US dollar just reached a six-month high against the Euro. Flight to safety, you see. But is this trend going to last? Well, if more problems erupt around the world like they did in Dubai and Greece, then yes, dollar could indeed push higher still. But one Dr Doom believes otherwise. Nouriel Roubini, the star economist has argued that dollar could correct by 15%-20% over the next 2-3 years against commodity currencies like Brazilian real and Canadian dollar.

We all know where he comes from. He seems to be betting on global economic recovery. And economic recoveries usually bring inflationary forces with them, thus benefitting countries that produce commodities. But what if there is a deflation? What if some blow up somewhere scares people into selling off assets and seeking the relative safety of the US dollar? Quite possible, isn't it? Not a very good time for companies involved in cross border trade and services. Currency volatility could certainly make life difficult for them.

The going has been good for employees of Indian pharma companies. At the height of the global crisis most companies from other sectors were laying off staff. Some were even cutting salaries. But pharma companies chose not to follow suit. And now that the Indian economy is recovering, pharma companies will certainly be the ones to benefit considerably. A leading business daily has reported that employees of pharma companies can expect their salaries to grow by 10-20% in 2010. Hiring is also on to scale up operations.

All the big names in the pharma world are looking to reward employees and recruit more people. These include the likes of GSK Pharma, Dr.Reddy's, Pfizer and Aventis. The global pharma environment has been improving. Most pharma companies reported strong growth in sales from the domestic market in the December quarter. On the exports front too, the environment for generics players is also looking a bit brighter. This is due to more product approvals and launches on the anvil. Little wonder then that pharma companies are looking to retain talent. After all, they want to be at the forefront to capitalise on the improving environment both domestically and globally.

India's troubles as far as power shortages are concerned are well documented. Households as well as industries suffer on account of the same. While one reason for these shortages is lack of power generation capacity, another big reason is that even the existing power plants cannot sometimes work at full capacity due to fuel shortages. This more often than not is due to the shortage of coal. In light of this, what is ironic is that the coal sector in turn is facing its own set of challenges.

The management of Coal India, the largest producer of the commodity in India, has recently said that it will not be able to meet its 11th plan period target for coal production. The reason? What should ideally take 300 days for a forest clearance for a coal project, is actually taking 5 to 6 years. And so, while we may have gotten liberation from colonial rule over 60 odd years back, we wonder how long it will take for us to achieve freedom from this dreadful malady of delays perpetually marring India's growth rates.

It is widely believed that economic growth will help India fight the problems of poverty and malnutrition. But the neglect of agriculture is undoing much of the good work in the more glamorous services and manufacturing sectors. India's agricultural production has stagnated at a time when the broader economy has grown. Especially for pulses, the main source of protein for most Indians. The result - high demand and low supply has caused prices to soar. India consumes about 18 m tonnes of pulses per year. Experts believe the number would soar if people consumed as much as they should. India produced about 15 m tonnes of pulses in 2008. In our view, it is time for a green revolution in pulses. Such a revolution was witnessed during the 1970s in rice and wheat. High yielding seeds were used. Today our granaries are stocked with emergency supplies of the cereals. We need an encore with pulses.

If you thought that the Euro zone crisis was limited to the PIGS (Portugal, Italy, Greece and Spain), here is an eye opener. Indian PSU banks are feeling the tremors of sovereign default risk of the European bellwethers. Talk about economic coupling.

Government owned banks in India that have so far been ambitious in terms of planning their overseas borrowing are now waking up to reality. That of foreign investors not willing to park money with them unless they are ready to pay a steep price. The credit risk in Europe has only added to the investors' skepticism and risk averseness. While one Indian PSU bank has had to cancel its overseas debt issue, three others are said to be re-considering their plans.

Carrying on with the volatile trend witnessed for most of the session today, the Indian indices continue to oscillate to either side of yesterday's close. The benchmark index, the BSE-Sensex was down by around 51 points (0.3%) at the time of writing, while its smaller peers, the BSE- Midcap and the BSE- Smallcap indices bucked the trend. They were up by around 0.7% and 0.9% respectively. Stocks from the IT, banking and telecom sectors were amongst the top gainers today, while those from the auto and power sectors failed to garner investor interest.

 Today's investing mantra
"It is better to be early than too late in recognizing the passing of one era, the waning of old investment favorites and the advent of a new era affording new opportunities for the investor." - Thomas Rowe Price, Jr.

Today's Premium Edition.

Recent Articles

All Good Things Come to an End... April 8, 2020
Why your favourite e-letter won't reach you every week day.
A Safe Stock to Lockdown Now April 2, 2020
The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
A stock with strong moat is currently trading near 5-year lows.
Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...

Equitymaster requests your view! Post a comment on ""I am more bullish on India"". Click here!

35 Responses to ""I am more bullish on India""

Suhas Pai

Feb 13, 2010

YES. The present Govt. will surely perform this time. When 90 out of 100 people are pessimistic 10 people will make a sure difference in the growth. Am bullish about the RURAL growth story in terms of EMPLOYMENT, EDUCATION & spendings coming from these areas. This era will be the new one after our Independence. Let us all be optimistic and +ve. I heard a saying," if you cannot move the top move the base".


ashok palit

Feb 12, 2010

our central govt does not have the acumen and political will to do the balancing act.they are like shorttime traders.


Siva Prasad Nandyal

Feb 11, 2010

Yes. It can be done and achieved. Indian growth tragectory can not be stoped by any body. Whether Govt implements proper programs or not the develoment wont stop unless Govt of the day puts breaks for such growth. If Govt does not interfear the growth will continue. The obstacles for growth or corruption, nepotisam and improper delievery system. These things could be over come if the citizens take a bold step of qustioning each worng decision or the wrong doing of the Govt, the system. If the civil society takes upon this task and if you and me take up this responsibility we can surpass China in Ten years time. Yes we can achieve and India can achieve much bigger goals and I am more bullish on India.


sujatha kumar

Feb 11, 2010

The Government has the potential to deliver but bureaucratic inefficiency, red tapism and corruption are the major impediments.


jatinder arora

Feb 11, 2010




Feb 11, 2010

Corruption not limited to Govt anymore it seeped into “Corporate ‘s”.
Govt clean up action, takes its usual speed..

All Corporate ’s

- Need to clean their employees (to avoid corruption seep through the Company) “Now” to achieve much healthier.
- Upgrade to International Business Standards.
- To Grow everyday than limiting to Being contented.
- Need to be more open for better solutions / counterparties.

Clean Company, Clean Employees, Clean Groups, Clean Society, Clean Country and - This can Make Difference.


vineet chawra

Feb 11, 2010



Vikas Morzaria

Feb 11, 2010

The government has definitely got the right men on the right jobs. The only test is whether the political will is strong enough.


S Chandra Sekhara Rao

Feb 11, 2010

Yes, only when corruption is removed from the system. No matter how much of commitment and efforts are there, Goals cannot be achieved with only 29 paise of every rupee spent goes into production.


Pradeep Kumar

Feb 11, 2010

I am not confident that Dr Manmohan Singhs can deliver on the economy. Our policy makers are happy taking decisions based on vote banks rather than economic growth. They are also very keen in listening to the american advice. All of us know what happenned to japan who was listening to the american advice for last 20-25 years. The american advice has always favoured themselves. If we have a definite big picture in mind then we can make the economy move towards that direction. Otherwise we will still grow inspite of our politicians.

Equitymaster requests your view! Post a comment on ""I am more bullish on India"". Click here!