Urgent Release: My Special Report on How to Trade the Coronavirus Crash

Is India in crisis?

Feb 19, 2011

In this issue:
» Ghost of debt haunts realty companies
» India's pharma exports to grow to Rs 500 bn
» Mr. Bernanke turns defensive
» "Pricing power" most important: Buffett
» ...and more!

-------------------------- How to Profit from Futures? Ask Asad himself! --------------------------
After the huge success of our first educative webinar on Derivatives, we are delighted to present you the next in the series - How to Invest Profitably in Derivatives.
Focussing on Futures, Asad Dossani will answer the all-important question for you - How to profit from Derivatives using them. And this is your only chance to ask him all your queries.
The webinar will be held on Monday, 21st February, 5.30 PM.
Hurry! Register for the webinar to send in your queries Now!
And as soon as you register for the Webinar, you will also get a FREE subscription to - The Daily Reckoning by Bill Bonner.
So don't miss this chance. Register for the webinar right away!

Budget time two decades ago. India stood on the brink of a crisis. It was the crisis of survival. To survive, India could no longer continue its closed economy. At that time, Dr. Manmohan Singh stepped in with his grand liberalization programme. It was a success. India not only survived but also went on to become one of the fastest growing economies in the world.

Fast forward to 2011. It is budget time again. And again India stands on the brink of a crisis. But this time the crisis is not for survival but a crisis for growth. That's right. The crisis this time around is on how to achieve growth.

The drivers for growth are still intact in the form of a growing middle class population, vibrant industrial sector, robust service sector, etc. However, unfortunately, the road blocks on the path of the growth have just grown bigger. The quantum of resources available to the government to invest in the areas that would drive growth, are just getting more and more limited. For instance, the government needs to cut back on subsidies and use the money to invest in infrastructure and debottlenecking the supply side glitches. The latter are the main reasons behind the growing inflation. However, cutting back subsidies is not politically viable.

So what are the options available to the government? They could raise tax rates but this would pinch the pockets of the common man who is already reeling under higher inflation. And if this happens, he would cut back on his consumption which in turn would affect growth.

So as we said earlier, India is again on the brink of a crisis. And all eyes are turned to its Finance Minister to help the country out of this situation. Will he succeed like the mighty Dr. Singh of 1991? Only time will tell.

What do you think India needs to do to achieve the 10% dream growth rate? Share your comments with us or post your views on our facebook page.

 Chart of the day
India's economy has been growing at a stellar pace in recent times. And its people have shared this growth. Today's chart of the day shows how the per capita income in India has been on the rise. Per capita income is the total GDP of the country divided by the total population of the country. True that it does not present an accurate picture as it does not capture the income divide in the country. But nevertheless, it is still a good proxy for the overall growth in the living standard of a country's population. And by this measure, Indians are prospering.

Data source: IMF

Do fallen real estate stocks tempt you? Looking at the economic scenario we don't think they should appeal to you. Huge debt, slow pickup in sales, involvement in scams all together has further raised eyebrows and clearly rules out a revival in the fortunes of the struggling sector. Some leading real estate companies are now being probed for their alleged involvement in the 2G scam. Not too long ago the companies from the real estate sector were involved in the bribe for loan scam. Going forward, tough regulations towards lending to real estate companies along with the rising interest rates will impact new demand and the borrowing cost. Amidst all this uncertainty we believe that investment in the sector should be avoided.

Indian pharma companies did not have much to cheer about in FY10. The global economic slowdown left its mark on the pharma industry as well as companies chose to rationalize their inventories. As a result of which sales growth was rather tepid. That said the scenario is set to change over the next 2-3 years. An increasing number of drugs are set to lose their patents presenting huge opportunities to Indian generics players focusing on the overseas markets especially the US. Not just that, governments across countries are also keen to accept generic drugs in a bid to reduce overall healthcare expenditure. And so the Pharmaceutical Exports Promotion Council (Pharmexcil) opines that pharmaceutical exports from India will touch Rs 500 bn in FY11. This translates into a healthy growth of around 20% YoY. Of course, most of these players will have to contend with increasing competition and price erosion which is a regular feature in the global generics markets. That is why those players focusing on limited competition products or niche ones will have the edge over their peers.

Everyone knows what mess the easy money policies of the US have caused the world over. Now there could not be a more obvious thing to have happened. The US Fed Chairman Mr. Bernanke still strongly defends the US policies. You may want to call it inconsistency-avoidance tendency. We'd like to be the first ones to call this phenomenon the Bernanke bias.

Anyway, let's hear a little bit of Mr. Bernanke's arguments. They are nothing new really. Just a repeat telecast actually. He continues to throw the blame on the surging growth in developing economies for the trouble in the US. It is the emerging markets, according to him, which are responsible for the run-up in global commodity prices. Of course, these allegations are aimed at China.

We'd like to conclude this little note with a famous Hindi cinema dialogue: "Those who live in glass houses, should not throw stones at others!"

We'd like you to answer this. While evaluating a business, what is the single most important parameter that you consider?

Well, the Godfather of investing, Warren Buffett, offers you a maxim you cannot refute. According to him, that one most important parameter is "pricing power". And this one thing is so important that he sometimes doesn't even consider the management in charge of the business. So why is "pricing power" so important for a business? Let us explain a bit.

One, if the business can raise prices without losing its market share then it surely has a very strong advantage over its competitors. It means that the company can easily pass off any rises in costs to the customers. Hence, there is no need to compromise on the margin front. And such a business not only survives, but even manages to thrive in times of economic downturns, when many a competitor goes under the water. The other important advantage of a business that has pricing power is its lower dependence on management performance. Pricing power alone assures that more than half the battle is won.

This lesson is very apt in the current high inflationary economic scenario where margins are under constant pressure. Have a look at your own stock portfolio and ask this important question: Do these companies have pricing power? We believe this one question has the power to make or break fortunes.

The week that went by was a good one for both Asian as well as the European markets. China and Brazil (each up 3.5%) were the biggest gainers of the week followed closely by Hong Kong (up 3.4%). As you can see from the chart displayed below, the Indian markets was one of the leading gainers this week with its benchmark index, the BSE-Sensex, posting a gain of 3%. Easing political tensions in Egypt led to broad based buying across the globe. While drop in food inflation lifted the Indian markets, developed markets registered modest gains for the week as upbeat corporate earnings forecast overshadowed China's latest monetary tightening move.

As for the other markets, France and Japan closed the week in the green and were up 2.2% and 1.4% respectively. US was up by 1.0%, while UK and Singapore closed the week with modest gains of 0.3%.

Data Source: Yahoo Finance

 Weekend investing mantra
"Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed." Benjamin Graham

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 "Is India in crisis?". Click here!

21 Responses to "Is India in crisis?"


Feb 19, 2011

There are many things which are affecting Indias Growth in every field They are as under:-
- corruption and no rigorious punishment for involved people.
- citizens noncooperation in developing process misusing govt resources and facilities.
- Govt servants irresponsive behaviour,asking rights but duties nowhere.
- Regional interest comming above national ones.
- Non decesiveness or clearcut Govt policies.
- political filth.
Many more to be continued


Anupam Garg

Feb 19, 2011

The seeds sown 2 decades back r definitely showin results. GDP growth has picked momentum & i think there's no need 2 accelerate it further, lest we want overheating. India, the self sufficient economy, can easily achieve the double figure, in a few years, if not immediately.

however, india doesn't rank well in the list of countries for ease of doin business. scams, frauds, red tapism etc portray india as a dishonest country. the level of transparency & honesty must b increased. of course, the FM can't do anythin in this regard.

wht the FM can handle is the issue of 'real' GDP growth. we now hav coins of Rs. 10. the purchasin power is declinin drastically. Rising costs do pose a threat 2 consumption & hence 2 growth.

thr's & thr always will b tradeoff between growth & inflation. if we still focus on increasin growth, we will achieve the dream double digits, but at the cost of low real GDP growth ...the time is ripe 2 sow seeds 2 control inflation so that after 2 decades, we don't hav 2 use a Rs. 50 coin.

companies with pricing power, of course, r good avenues for investments. i am aware of a few pharma firms enjoyin such power at the misery of common man while the CCI sleeps merrily.


Shome suvra chakraborty

Feb 19, 2011

In India the demand for money is very much sensitive to income and any increase in money supply will be absorbed through small change in income leaving behind a small monetary multiplier. Domestic Savings should increase to reduce dependence on external savings. Supply constraints should be overcome.



Feb 19, 2011

i think India needs to concentrate on the sectors which are lacking behind and one of the major sector on which finance minsteary should work upon is the Agriculture sector. only making your strong points more strong doesn't help to survive in long run but one has to work upon its weak points and make them stronger so that he can succeed and so even India should do this to achieve its target growth rate...



Feb 19, 2011

What India needs to do to achieve the 10% dream growth rate?
1. Improve governance
2. Increase agricultural productivity
3. Raise educational achievement
4. Increase quality and quantity of universities
5. Control inflation
6. Introduce a credible fiscal policy
7. Increase trade with neighbours
8. Restructuring and improving infrastructure
9. Improve environmental quality.
10. Protect against corruption in various government department and to reduce poverty,


rajesh jogani

Feb 19, 2011

Dr. Manmohan singh did nothing in 1992 to insure survival. It was Narasimha Rao our then Prime Minister who did it all. Dr. Manmohan singh was a lame duck finance minister, carrying out the orders of the smart, Machiaveli Prime Minister Mr. Rao who put Sonia Gandhi in Place.

Manmohan Singh was a lame duck finance minister just as he is a lame duck Prime Minister. Carrying out the orders of Sonia.


R. Balakrishnan

Feb 19, 2011

As every body understands infrastructure is the bottle neck. We are concentrating on roads. We must concentrate on the development of rail. We have to modernize our railway system. Similar to development of road by Build-operate-transfer, we should do similar thing in Rail. Road transport is always going to be costly, by rail, it shall be cheaper and also pollution free if electric locos are used.


zephyrine goveas

Feb 19, 2011

The subsidies give unfair advantage to the well to do than the actual benefits to be poor. The subsidised oil products allow the rich in their mercedez and SUVs to splurge. There is absolutely no logic in subsidising domestic LPG. When Govt. tries to curtail subsidy the opposition and some parties in the Govt. oppose it tooth and nail. The political parties in India do not want growth, they only want power. The public distribution system is corrupt. Now Karnataka has 40 lakh bogus ration cards. Maharashtra is going to start a drive to check illegal ration cards. It is high time State Govts. put their house in order instead of blaming centre for inflation. The growth should not be sacrificed. After all, it is the high growth achieved which has considerably reduced poverty although the disparities between the rich and poor may seem to be widening.



Feb 19, 2011



Subrata Pramanik

Feb 19, 2011

When inflation is the bottleneck...we cannot control the external factors, but certainly we can cut down our own costs. Govt. needs to cut its own cost. Every delay in any process costs money, be it public money or private or individual. Talk about Indian Judiciary ...decision takes multiple years to come. Talk out Govt. clearances.....Posco is fighting six years to set up a business. Talk about Indian roads.....we lose probably 10 to 15% of total domestic Crude consumption in Traffic Jam. Talk about RTO rules....we are still working with rules created by British, we could not change. Talk about Direct & Indirect Tax structure and its governance process. We lose precious manhours in non-value added activities in calculating, filling etc.Moreover we tweak rules now and then causing extra work for every change. Can government not plan to reduce these costs and make productive usage of this money?

<<Prev    Next>>
Equitymaster requests your view! Post a comment on "Is India in crisis?". Click here!