The dark horse of India's long term future
In this issue:
» Faber is bullish on Japanese stocks
» Spending cuts will kill US recovery
» China is set for another 5 years of fat growth
» Who will gain if oil prices rise?
» ...and more!
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Not just that, if you take India into consideration, spending on construction will overtake Japan by 2018. And this is when India will become the world's third-largest construction market. There is no doubt that construction in emerging markets including India will see robust growth in the future. Especially considering the scope for growth in Indian infrastructure. What is more, the government has been stressing on the need to ramp up infrastructure investments. And the initiatives on this front are bound to have positive connotations for the construction industry.
But construction companies in India have a lot of challenges to overcome. Although their order books may be flowing, execution has always remained an issue. Particularly given the complexity of projects, problems with land acquisition and red tape. Plus, most companies in the sector are saddled with load of debt on their books. This eats into their profits in a rising interest rate scenario. Exceptionally high prices (especially in the case of real estate) also act as a huge demand dampener. And the nexus with politicians plus poor disclosure norms only compounds the problems.
Indeed, in India, the construction sector is the second largest employer in the country, next only to agriculture. Hence, addressing its challenges and ensuring a healthy growth for this sector could be benign for the economy. For investors it would advisable to go in for a bottom up approach for the sector. Companies with healthy balance sheets at discounted valuations could prove to be long term winners.
Do you think that investors can make money in India's construction sector in the long term? Share with us or post your comments on our Facebook page.
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Krugman has told a leading international business daily that any spending cuts from the US government will 'kill the recovery'.
Krugman is reported to have said that if spending cuts happen, "...hundreds of thousands of jobs would be lost, something Republicans believe will be offset by improved business confidence. They believe that the Confidence Fairy will make everything all right."
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Of course, there is no denying that China has all the right ingredients for a perfect growth recipe. There is a growing domestic consumption demand. Supply of funds is abundant. The demographics, the infrastructure, the scientific and educational level are all a great plus for the economy.
But inflation continues to be a real threat. Prices of food, housing, healthcare and other goods remain unabated. And this could turn out to be more than an economic problem for the government. We have already witnessed the political upheaval in the Middle East and North African (MENA) region for the very same reasons. If any of those tremors reach the Asian giant, the ruling Communist Party is going to have many a sleepless night.
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However, we believe otherwise. Unless there is a real shortage of oil reserves, even if oil prices rise for a while, it will not sustain for long. And this doesn't seem to be the case as OPEC sits on huge spare capacities. Among the numerous scenarios, the only one where we will hit the panic button is when crisis spreads to Saudi Arabia.
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Amongst emerging markets, India was the biggest gainer (up 4.4%) closely followed by Hong Kong and Brazil. Singapore and China too registered modest gains of 1.2% and 0.8% respectively. The fiscal road map laid down by the FM during the course of the budget announcement lead to a sharp rally in the Indian markets.
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04:56 | Weekend investing mantra |
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8 Responses to "The dark horse of India's long term future"
viny gupta
Mar 7, 2011If India's construction sector wants to get FDI in real terms it would need to follow international accounting practices and it would need to be transparent. All payments would need to be in cheques.
Manoj Kumar
Mar 6, 2011In the long run any sector can make money for the investors but in the short to medium term, this sector is headed for disaster given the opacity and greed of the companies in this sector. We first will have a few bubbles, a few more scams and then reforms will come and then only this sector will become healthy for retail investors.
Anupam garg
Mar 5, 2011pretty lengthy edition....wonder who can finish it in 5 min...the articles were quite informative as well
niraj
Aug 9, 2011good article but cant help in investment